UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 24, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission File number 1-9273 PILGRIM'S PRIDE CORPORATION (Exact name of registrant as specified in its charter) | Delaware | 75-1285071 | | --- | ...

Pilgrim's Pride Corporation (NASDAQ: PPC) ▪ Q2 2023 Adjusted EBITDA* YoY decrease driven by substantially lower US commodity market pricing; however, continued QoQ improvements in Adjusted EBITDA* due to benefits of our portfolio balance, Key Customer strategy, and geographic diversification. ▪ U.S.: Substantial year-over-year (YoY) decline in commodity market pricing impacted Big Bird business; however, significant quarter-over-quarter (QoQ) operating income improvement for the overall US business; UK/Euro ...

Financial Data and Key Metrics Changes - For Q2 2023, the company reported net revenues of $4.3 billion, down from $4.63 billion a year ago, with adjusted EBITDA of $249 million, translating to a 5.8% margin compared to 13.5% in Q2 2022 [7][92]. - Adjusted EBITDA margins in the U.S. were 4.6%, down from 18% a year ago, while UK and Europe margins improved to 5.2% from 3.4% [93]. - In Mexico, adjusted EBITDA was 12.2%, virtually flat compared to 12.3% last year [93]. Business Line Data and Key Metrics Changes - The prepared foods segment saw a significant decline, with sales down 27% year-over-year, while branded offerings like Just BARE and Pilgrim's prepared grew 56% year-over-year [30][67]. - The U.S. ready-to-cook chicken production increased by 2.2% compared to Q2 2022, supported by increased headcounts [44]. - The Big Bird segment faced challenges with lower demand and pricing, while the Small Bird and prepared food businesses continued to perform strongly [96][67]. Market Data and Key Metrics Changes - The U.S. consumer is facing lower beef and pork availability, which may favor chicken due to its affordability and flexibility [47]. - Domestic volume growth in the retail channel was muted, but promotional activities are expected to drive sales volume more consistently [49]. - U.S. broiler exports grew at a healthy rate, with significant increases in volume to Taiwan, Mexico, and China [54]. Company Strategy and Development Direction - The company is focused on portfolio diversification, key customer partnerships, and operational excellence to navigate market challenges and drive long-term profitable growth [4][26]. - Investments in automation and operational improvements are expected to yield $100 million to $200 million in operational efficiencies annually [35][101]. - The company plans to continue launching new products and enhancing its promotional pipeline to drive growth [72][70]. Management Comments on Operating Environment and Future Outlook - Management noted that the operational environment remains challenging, but strategies have proven effective in improving margins despite market conditions [4][26]. - The company anticipates lower production year-over-year in Q3 and Q4 due to reduced chick placements and overall industry trends [12][45]. - Management remains optimistic about the potential for growth in the prepared foods segment and expects to see improvements in pricing dynamics in the coming months [67][128]. Other Important Information - The company incurred approximately $30 million in restructuring charges during the quarter as part of its network optimization efforts [99]. - The liquidity position remains strong, with approximately $1.8 billion in total cash and revolver availability as of June 25, 2023 [102]. - The effective tax rate for the quarter was significantly impacted by discrete tax items, with an expected full-year effective tax rate of approximately 10% [106]. Q&A Session Summary Question: What is the current status of restructuring in the UK? - Management indicated that there are about $3 million to $5 million left in cash costs related to restructuring, with a decent SG&A run rate expected going forward [111][113]. Question: How are pricing dynamics across different bird sizes? - Management noted that small bird pricing is stable and above the five-year average, while the Big Bird segment is facing challenges due to increased production and lower retail growth [117][126]. Question: What are the expectations for the Mexico segment in Q3? - Management expects steady growth in Mexico, with balanced supply and demand, despite the usual volatility in the market [139].

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents Pilgrim's Pride Corporation's unaudited condensed consolidated financial statements and management's discussion and analysis for the reported periods [Item 1. Condensed Consolidated Financial Statements](index=2&type=section&id=Item%201.%20Condensed%20Consolidated%20Financial%20Statements) This section presents Pilgrim's Pride Corporation's unaudited condensed consolidated financial statements and accompanying notes for the periods ended June 25, 2023, and December 25, 2022 [Condensed Consolidated Balance Sheets](index=3&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) Total assets increased by **7.2% to $9.92 billion**, driven by higher cash, inventories, and property, plant and equipment | Metric | June 25, 2023 (In thousands) | December 25, 2022 (In thousands) | Change (In thousands) | % Change | |:---|:---|:---|:---|:---| | Cash and cash equivalents | $730,980 | $400,988 | $329,992 | 82.3% | | Total current assets | $4,364,834 | $3,891,618 | $473,216 | 12.2% | | Total assets | $9,922,511 | $9,255,769 | $666,742 | 7.2% | | Total current liabilities | $2,542,359 | $2,570,169 | $(27,810) | -1.1% | | Long-term debt, less current maturities | $3,699,607 | $3,166,432 | $533,175 | 16.8% | | Total liabilities | $6,849,923 | $6,402,493 | $447,430 | 7.0% | | Total stockholders' equity | $3,072,588 | $2,853,276 | $219,312 | 7.7% | [Condensed Consolidated Statements of Income](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) Net sales decreased by **7.0%** for the three months and **4.5%** for the six months ended June 25, 2023, leading to significant declines in gross profit and net income | Metric | Three Months Ended June 25, 2023 (In thousands) | Three Months Ended June 26, 2022 (In thousands) | Change (In thousands) | % Change | |:---|:---|:---|:---|:---| | Net sales | $4,308,091 | $4,631,648 | $(323,557) | -7.0% | | Gross profit | $278,425 | $676,771 | $(398,346) | -58.9% | | Operating income | $100,271 | $512,904 | $(412,633) | -80.5% | | Net income attributable to Pilgrim's Pride Corporation | $60,456 | $362,116 | $(301,660) | -83.3% | | Diluted EPS | $0.25 | $1.50 | $(1.25) | -83.3% | | Metric | Six Months Ended June 25, 2023 (In thousands) | Six Months Ended June 26, 2022 (In thousands) | Change (In thousands) | % Change | |:---|:---|:---|:---|:---| | Net sales | $8,473,719 | $8,872,043 | $(398,324) | -4.5% | | Gross profit | $451,472 | $1,218,751 | $(767,279) | -63.0% | | Operating income | $131,614 | $914,917 | $(783,303) | -85.6% | | Net income attributable to Pilgrim's Pride Corporation | $65,643 | $642,554 | $(576,911) | -89.8% | | Diluted EPS | $0.28 | $2.65 | $(2.37) | -89.4% | [Condensed Consolidated Statements of Comprehensive Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income) Total comprehensive income for the three months ended June 25, 2023, was **$163.6 million**, a slight decrease from the prior year, while the six-month period saw a **45.9% decrease** to **$215.6 million** | Metric | Three Months Ended June 25, 2023 (In thousands) | Three Months Ended June 26, 2022 (In thousands) | Change (In thousands) | % Change | |:---|:---|:---|:---|:---| | Net income | $60,908 | $362,021 | $(301,113) | -83.2% | | Foreign currency translation adjustment (Gains/Losses) | $101,281 | $(199,328) | $300,609 | 150.8% | | Total other comprehensive income (loss), net of tax | $102,700 | $(193,073) | $295,773 | 153.2% | | Comprehensive income | $163,608 | $168,948 | $(5,340) | -3.2% | | Metric | Six Months Ended June 25, 2023 (In thousands) | Six Months Ended June 26, 2022 (In thousands) | Change (In thousands) | % Change | |:---|:---|:---|:---|:---| | Net income | $66,539 | $642,581 | $(576,042) | -89.6% | | Foreign currency translation adjustment (Gains/Losses) | $143,925 | $(257,530) | $401,455 | 156.0% | | Total other comprehensive income (loss), net of tax | $149,106 | $(243,978) | $393,084 | 161.1% | | Comprehensive income | $215,645 | $398,603 | $(182,958) | -45.9% | [Condensed Consolidated Statements of Stockholders' Equity](index=6&type=section&id=Condensed%20Consolidated%20Statements%20of%20Stockholders%27%20Equity) Total stockholders' equity increased by **$219.3 million to $3.07 billion**, driven by net income and a positive shift in other comprehensive income | Metric | Six Months Ended June 25, 2023 (In thousands) | Six Months Ended June 26, 2022 (In thousands) | Change (In thousands) | |:---|:---|:---|:---| | Balance at beginning of period | $2,853,276 | $2,588,934 | $264,342 | | Net income | $65,643 | $642,554 | $(576,911) | | Other comprehensive income (loss), net of tax | $149,106 | $(243,978) | $393,084 | | Stock-based compensation plans (recognition) | $3,667 | $4,536 | $(869) | | Common stock purchased under share repurchase program | $0 | $(119,989) | $119,989 | | Balance at end of period | $3,072,588 | $2,872,084 | $200,504 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly decreased to **$89.3 million**, while financing activities surged to **$500.4 million** due to new long-term borrowings | Cash Flow Activity | Six Months Ended June 25, 2023 (In millions) | Six Months Ended June 26, 2022 (In millions) | Change (In millions) | % Change | |:---|:---|:---|:---|:---| | Cash provided by operating activities | $89.3 | $421.2 | $(331.9) | -78.8% | | Cash used in investing activities | $(250.9) | $(198.7) | $(52.2) | 26.3% | | Cash provided by financing activities | $500.4 | $56.0 | $444.4 | 793.6% | | Increase in cash, cash equivalents, restricted cash and restricted cash equivalents | $342.2 | $272.5 | $69.7 | 25.6% | | Cash, cash equivalents, restricted cash and restricted cash equivalents, end of period | $777.0 | $722.6 | $54.4 | 7.5% | [Notes to Condensed Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed disclosures for the condensed consolidated financial statements, covering business operations, accounting policies, and various financial accounts [1. Business and Summary of Significant Accounting Policies](index=9&type=section&id=1.%20BUSINESS%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) Pilgrim's Pride Corporation is a global chicken producer with extensive operations and JBS S.A. holding a majority ownership stake - Pilgrim's Pride Corporation is one of the largest chicken producers globally, with operations in the U.S., U.K., Mexico, France, Puerto Rico, the Netherlands, and the Republic of Ireland[25](index=25&type=chunk) - As of June 25, 2023, the company had approximately **61,900 employees** and the capacity to process approximately **42.1 million birds** and **33,500 pigs** per 5-day work week[25](index=25&type=chunk) - JBS S.A. beneficially owned **82.6%** of the Company's outstanding common stock as of June 25, 2023[25](index=25&type=chunk) **Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents (In thousands)** | Metric | June 25, 2023 (In thousands) | December 25, 2022 (In thousands) | |:---|:---|:---| | Cash and cash equivalents | $730,980 | $400,988 | | Restricted cash and restricted cash equivalents | $46,030 | $33,771 | | Total cash, cash equivalents, restricted cash and restricted cash equivalents | $777,010 | $434,759 | [2. Revenue Recognition](index=10&type=section&id=2.%20REVENUE%20RECOGNITION) Revenue is recognized upon transfer of product control, with total net sales decreasing for both the three and six months ended June 25, 2023 - Revenue is recognized when control of products transfers to the customer, typically upon destination or customer pick-up[37](index=37&type=chunk) **Net Sales by Segment and Product Type (Three Months Ended, In thousands)** | Segment | Prepared (In thousands) | Fresh (In thousands) | Export (In thousands) | Other (In thousands) | Total (In thousands) | |:---|:---|:---|:---|:---|:---| | **June 25, 2023** | | | | | | | U.S. | $1,992,208 | $221,655 | $139,498 | $92,847 | $2,446,208 | | U.K. and Europe | $280,707 | $878,720 | $117,103 | $34,220 | $1,310,750 | | Mexico | $473,742 | $49,848 | $0 | $27,543 | $551,133 | | **Total Net Sales** | **$2,746,657** | **$1,150,223** | **$256,601** | **$154,610** | **$4,308,091** | | **June 26, 2022** | | | | | | | U.S. | $2,312,418 | $303,963 | $141,015 | $142,483 | $2,899,879 | | U.K. and Europe | $232,045 | $791,189 | $184,862 | $36,956 | $1,245,052 | | Mexico | $425,849 | $39,338 | $0 | $21,530 | $486,717 | | **Total Net Sales** | **$2,970,312** | **$1,134,490** | **$325,877** | **$200,969** | **$4,631,648** | **Revenue Contract Liabilities (In thousands)** | Metric | Amount | |:---|:---| | Balance as of December 25, 2022 | $34,486 | | Revenue recognized | $(21,699) | | Cash received, excluding amounts recognized as revenue during the period | $48,446 | | Balance as of June 25, 2023 | $61,233 | [3. Derivative Financial Instruments](index=12&type=section&id=3.%20DERIVATIVE%20FINANCIAL%20INSTRUMENTS) The company uses derivatives to manage commodity price and foreign currency risks, reporting net derivative liabilities and a **$30.0 million** loss from undesignated derivatives - The Company uses exchange-traded futures and options to mitigate price risk related to anticipated consumption of commodity inputs (corn, soybean meal, soybean oil, wheat, natural gas, electricity, diesel fuel)[45](index=45&type=chunk) - Foreign currency forward contracts are purchased to manage translational foreign exchange risk from operations in Mexico, the U.K., France, the Netherlands, and the Republic of Ireland[46](index=46&type=chunk) **Fair Values of Derivative Instruments (In thousands)** | Metric | June 25, 2023 | December 25, 2022 | |:---|:---|:---| | Commodity derivative assets | $10,706 | $17,922 | | Commodity derivative liabilities | $(34,882) | $(9,042) | | Foreign currency derivative assets | $1,312 | $555 | | Foreign currency derivative liabilities | $(4,484) | $(6,170) | | Sales contract derivative liabilities | $(1,178) | $(3,705) | | Cash collateral posted with brokers | $46,030 | $33,771 | | Corn derivatives coverage | 11.8% (through March 2024) | 14.4% (through December 2023) | | Soybean meal derivatives coverage | 18.2% (through March 2024) | 10.1% (through December 2023) | **Gains (Losses) from Undesignated Derivative Instruments (In thousands)** | Type of Contract | Three Months Ended June 25, 2023 | Three Months Ended June 26, 2022 | Six Months Ended June 25, 2023 | Six Months Ended June 26, 2022 | Affected Line Item | |:---|:---|:---|:---|:---|:---| | Foreign currency derivatives | $(28,551) | $(5,260) | $(47,654) | $(18,560) | Foreign currency transaction losses | | Commodity derivatives | $188 | $(12,517) | $(16,347) | $19,023 | Cost of sales | | Sales contract derivative liabilities | $(1,637) | $16,849 | $2,528 | $8,182 | Net sales | | **Total** | **$(30,000)** | **$(928)** | **$(61,473)** | **$8,645** | | [4. Trade Accounts and Other Receivables](index=15&type=section&id=4.%20TRADE%20ACCOUNTS%20AND%20OTHER%20RECEIVABLES) Net receivables increased to **$1.16 billion**, with a stable allowance for credit losses, and a new **$265.0 million** receivables purchase agreement was established **Trade Accounts and Other Receivables (In thousands)** | Metric | June 25, 2023 | December 25, 2022 | |:---|:---|:---| | Trade accounts receivable | $1,051,942 | $984,332 | | Notes receivable from third parties | $48,586 | $33,477 | | Other receivables | $72,544 | $88,962 | | Receivables, gross | $1,173,072 | $1,106,771 | | Allowance for credit losses | $(9,647) | $(9,559) | | Receivables, net | $1,163,425 | $1,097,212 | | Accounts receivable from related parties | $1,697 | $2,512 | **Activity in Allowance for Credit Losses (Six Months Ended June 25, 2023, In thousands)** | Metric | Amount | |:---|:---| | Balance, beginning of period | $(9,559) | | Provision charged to operating results | $(576) | | Account write-offs and recoveries | $1,166 | | Effect of exchange rate | $(678) | | Balance, end of period | $(9,647) | - In June 2023, the Company entered into a receivables purchase agreement for an uncommitted facility with a maximum capacity of **$265.0 million**, allowing the sale of eligible trade receivables without recourse[62](index=62&type=chunk) [5. Inventories](index=15&type=section&id=5.%20INVENTORIES) Total inventories increased by **2.9% to $2.05 billion**, primarily driven by higher finished products and maintenance materials and parts **Inventories (In thousands)** | Metric | June 25, 2023 | December 25, 2022 | |:---|:---|:---| | Raw materials and work-in-process | $1,219,819 | $1,204,092 | | Finished products | $651,061 | $596,375 | | Operating supplies | $73,679 | $95,367 | | Maintenance materials and parts | $103,258 | $94,350 | | **Total inventories** | **$2,047,817** | **$1,990,184** | [6. Investments in Securities](index=15&type=section&id=6.%20INVESTMENTS%20IN%20SECURITIES) Available-for-sale securities increased to **$308.7 million**, generating gross realized gains of **$4.4 million** and **$6.3 million** for the three and six months ended June 25, 2023, respectively **Available-for-Sale Securities (Cash Equivalents, In thousands)** | Metric | June 25, 2023 (Fair Value) | December 25, 2022 (Fair Value) | |:---|:---|:---| | Fixed income securities | $308,722 | $167,430 | - Gross realized gains from available-for-sale securities were **$4.4 million** for the three months and **$6.3 million** for the six months ended June 25, 2023[65](index=65&type=chunk) [7. Goodwill and Intangible Assets](index=16&type=section&id=7.%20GOODWILL%20AND%20INTANGIBLE%20ASSETS) Goodwill increased by **$55.0 million to $1.28 billion**, primarily due to currency translation, while net intangible assets also rose to **$868.1 million** **Goodwill by Segment (Six Months Ended June 25, 2023, In thousands)** | Segment | December 25, 2022 | Currency Translation | June 25, 2023 | |:---|:---|:---|:---| | U.S. | $41,936 | $0 | $41,936 | | U.K. and Europe | $1,058,204 | $55,002 | $1,113,206 | | Mexico | $127,804 | $0 | $127,804 | | **Total** | **$1,227,944** | **$55,002** | **$1,282,946** | **Intangible Assets, Net (In thousands)** | Metric | December 25, 2022 | Amortization | Currency Translation | June 25, 2023 | |:---|:---|:---|:---|:---| | Trade names not subject to amortization | $549,024 | $0 | $29,591 | $578,615 | | Trade names subject to amortization | $112,057 | $0 | $874 | $112,931 | | Customer relationships | $427,662 | $0 | $13,217 | $440,879 | | Accumulated amortization (Trade names) | $(53,708) | $(1,898) | $(139) | $(55,745) | | Accumulated amortization (Customer relationships) | $(189,015) | $(14,821) | $(4,749) | $(208,585) | | **Intangible assets, net** | **$846,020** | **$(16,719)** | **$38,794** | **$868,095** | [8. Property, Plant and Equipment](index=16&type=section&id=8.%20PROPERTY%2C%20PLANT%20AND%20EQUIPMENT) Net property, plant and equipment increased by **4.9% to $3.09 billion**, with **$286.6 million** in capital expenditures and a **$4.0 million** impairment loss due to restructuring **Property, Plant and Equipment, Net (In thousands)** | Metric | June 25, 2023 | December 25, 2022 | |:---|:---|:---| | Land | $270,474 | $263,494 | | Buildings | $2,113,264 | $2,065,042 | | Machinery and equipment | $3,746,044 | $3,651,464 | | Autos and trucks | $86,388 | $77,865 | | Finance lease assets | $5,710 | $5,710 | | Construction-in-progress | $474,532 | $358,819 | | PP&E, gross | $6,696,412 | $6,422,394 | | Accumulated depreciation | $(3,610,873) | $(3,481,548) | | **PP&E, net** | **$3,085,539** | **$2,940,846** | - Depreciation expense was **$96.4 million** for the three months and **$186.4 million** for the six months ended June 25, 2023[68](index=68&type=chunk) - Capital expenditures totaled **$286.6 million** for the six months ended June 25, 2023, including investments in plant expansion and automation projects[69](index=69&type=chunk)[221](index=221&type=chunk) - An additional impairment loss on PP&E of **$4.0 million** was recognized during the six months ended June 25, 2023, due to restructuring activities in the U.K. and Europe segment[71](index=71&type=chunk) [9. Current Liabilities](index=18&type=section&id=9.%20CURRENT%20LIABILITIES) Total current liabilities increased by **1.6% to $2.53 billion**, driven by higher revenue contract liabilities, accrued sales rebates, and other accrued expenses **Current Liabilities (Excluding Income Taxes and Current Maturities of Long-Term Debt, In thousands)** | Metric | June 25, 2023 | December 25, 2022 | |:---|:---|:---| | Trade accounts payable | $1,408,842 | $1,476,552 | | Accounts payable to related parties | $14,718 | $12,155 | | Revenue contract liabilities | $61,233 | $34,486 | | Compensation and benefits | $239,399 | $258,098 | | Litigation settlements | $93,130 | $99,230 | | Accrued sales rebates | $91,195 | $55,002 | | Current maturities of operating lease liabilities | $73,593 | $79,222 | | Insurance and self-insured claims | $67,417 | $72,453 | | Interest and debt-related fees | $43,084 | $32,433 | | Derivative liabilities | $40,543 | $18,917 | | Taxes | $38,752 | $33,550 | | Other accrued expenses | $247,283 | $201,994 | | **Total** | **$2,525,887** | **$2,485,479** | [10. Supplier Finance Programs](index=18&type=section&id=10.%20SUPPLIER%20FINANCE%20PROGRAMS) The outstanding balance of confirmed invoices under supplier finance programs significantly decreased to **$112.5 million** as of June 25, 2023 **Outstanding Balance of Confirmed Invoices (In millions)** | Metric | June 25, 2023 | December 25, 2022 | |:---|:---|:---| | Outstanding balance of confirmed invoices | $112.5 | $239.6 | [11. Income Taxes](index=19&type=section&id=11.%20INCOME%20TAXES) The company recorded an income tax benefit of **$24.1 million** for the six months ended June 25, 2023, resulting in a **(56.7)% effective tax rate** - For the six months ended June 25, 2023, the Company recorded an income tax benefit of **$24.1 million**, with a **(56.7)% effective tax rate**, compared to an income tax expense of **$187.9 million** (**22.6% effective tax rate**) in the prior year[76](index=76&type=chunk) - The decrease in income tax expense was primarily due to a decrease in profit before income taxes and amplified routine tax adjustments on discrete items due to multi-jurisdictional results[76](index=76&type=chunk) - The Company did not believe it had sufficient positive evidence to conclude that realization of a portion of its foreign net deferred tax assets are more likely than not to be realized as of June 25, 2023[77](index=77&type=chunk) [12. Debt](index=19&type=section&id=12.%20DEBT) Long-term debt increased by **16.8% to $3.70 billion**, driven by the issuance of **$1.0 billion** in 6.25% Senior Notes due 2033 **Long-Term Debt Components (In thousands)** | Metric | June 25, 2023 | December 25, 2022 | |:---|:---|:---| | Senior notes payable, net of discount, at 6.25% (2033) | $993,239 | $0 | | Senior notes payable at 3.50% (2032) | $900,000 | $900,000 | | Senior notes payable, net of discount, at 4.25% (2031) | $992,195 | $991,692 | | Senior notes payable, net of discount, at 5.875% (2027) | $846,941 | $846,582 | | U.S. Credit Facility (Term note payable) | $0 | $480,078 | | Finance lease obligations | $3,149 | $3,624 | | **Long-term debt, less current maturities, net of capitalized financing costs** | **$3,699,607** | **$3,166,432** | - On April 19, 2023, the Company completed a sale of **$1.0 billion** aggregate principal amount of its **6.25%** unsecured, registered senior notes due 2033, with proceeds used to repay term loans under the U.S. Credit Facility and for general corporate purposes[89](index=89&type=chunk) - As of June 25, 2023, there were no outstanding borrowings under the U.S. Credit Facility, U.K. and Europe Revolving Facility, or Mexico Credit Facility[92](index=92&type=chunk)[98](index=98&type=chunk)[100](index=100&type=chunk) [13. Stockholders' Equity](index=22&type=section&id=13.%20STOCKHOLDERS%27%20EQUITY) Accumulated other comprehensive loss decreased significantly to **$(187.3) million**, primarily due to a positive foreign currency translation adjustment **Changes in Accumulated Other Comprehensive Loss (Six Months Ended June 25, 2023, In thousands)** | Component | Balance, beginning of period | Other comprehensive income (loss) before reclassifications | Amounts reclassified to net income | Currency translation | Net current period other comprehensive income (loss) | Balance, end of period | |:---|:---|:---|:---|:---|:---|:---| | Losses Related to Foreign Currency Translation | $(269,825) | $143,925 | $0 | $0 | $143,925 | $(125,900) | | Losses on Derivative Financial Instruments Classified as Cash Flow Hedges | $(1,162) | $(1,648) | $(349) | $(11) | $(2,008) | $(3,170) | | Losses Related to Pension and Other Postretirement Benefits | $(65,447) | $7,207 | $342 | $(341) | $7,208 | $(58,239) | | Losses on Available-for-Sale Securities | $(14) | $(41) | $22 | $0 | $(19) | $(33) | | **Total** | **$(336,448)** | **$149,443** | **$15** | **$(352)** | **$149,106** | **$(187,342)** | **Amounts Reclassified from Accumulated Other Comprehensive Loss to Net Income (Six Months Ended, In thousands)** | Component | June 25, 2023 | June 26, 2022 | Affected Line Item | |:---|:---|:---|:---| | Realized gains (losses) on settlement of foreign currency derivatives (Net sales) | $335 | $(933) | Net sales | | Realized gains (losses) on settlement of foreign currency derivatives (Cost of sales) | $14 | $(288) | Cost of sales | | Realized losses on sale of securities | $(29) | $0 | Interest income | | Realized losses on settlement of interest rate swap derivatives | $0 | $(98) | Interest expense, net of capitalized interest | | Amortization of pension and other postretirement plan actuarial losses | $(448) | $(577) | Miscellaneous, net | | **Total before tax** | **$(128)** | **$(1,896)** | | | Tax benefit | $113 | $165 | | | **Total reclassification for the period** | **$(15)** | **$(1,731)** | | - Both the U.S. Credit Facility and the indentures governing the Company's senior notes restrict, but do not prohibit, the Company from declaring dividends[105](index=105&type=chunk) [14. Pension and Other Postretirement Benefits](index=24&type=section&id=14.%20PENSION%20AND%20OTHER%20POSTRETIREMENT%20BENEFITS) Total retirement plan expenses decreased, and the unfunded benefit obligation for defined benefit plans also saw a reduction - Total expenses recognized under all retirement plans were **$7.8 million** for the three months and **$15.4 million** for the six months ended June 25, 2023[107](index=107&type=chunk) **Funded Status of Defined Benefit Plans (In thousands)** | Metric | June 25, 2023 (Pension Benefits) | June 25, 2023 (Other Benefits) | December 25, 2022 (Pension Benefits) | December 25, 2022 (Other Benefits) | |:---|:---|:---|:---|:---| | Unfunded benefit obligation, end of period | $(13,325) | $(1,110) | $(26,014) | $(1,169) | **Net Periodic Benefit Costs (Six Months Ended, In thousands)** | Component | June 25, 2023 (Pension Benefits) | June 25, 2023 (Other Benefits) | June 26, 2022 (Pension Benefits) | June 26, 2022 (Other Benefits) | |:---|:---|:---|:---|:---| | Interest cost | $5,097 | $22 | $3,224 | $10 | | Estimated return on plan assets | $(4,753) | $0 | $(5,014) | $0 | | Settlement loss | $0 | $0 | $1,167 | $0 | | Expenses paid from assets | $146 | $0 | $188 | $0 | | Amortization of net loss | $440 | $0 | $568 | $0 | | Amortization of past service cost | $8 | $0 | $9 | $0 | | **Net costs** | **$938** | **$22** | **$142** | **$10** | - The Company's expenses related to its defined contribution plans totaled **$6.9 million** for the three months and **$13.7 million** for the six months ended June 25, 2023[114](index=114&type=chunk) [15. Fair Value Measurement](index=26&type=section&id=15.%20FAIR%20VALUE%20MEASUREMENT) The company measures derivative assets and liabilities at fair value, primarily using Level 1 inputs for derivatives and Level 2 for fixed-rate senior notes **Financial Instruments Measured at Fair Value on a Recurring Basis (June 25, 2023, In thousands)** | Metric | Level 1 | Level 2 | Total | |:---|:---|:---|:---| | Commodity derivative assets | $10,706 | $0 | $10,706 | | Foreign currency derivative assets | $1,312 | $0 | $1,312 | | Commodity derivative liabilities | $(34,882) | $0 | $(34,882) | | Foreign currency derivative liabilities | $(4,484) | $0 | $(4,484) | | Sales contract derivative liabilities | $0 | $(1,178) | $(1,178) | **Carrying Amounts and Estimated Fair Values of Debt Obligations (June 25, 2023, In thousands)** | Debt Type | Carrying Amount | Fair Value | |:---|:---|:---| | Fixed-rate senior notes payable at 3.50% (Level 2) | $(900,000) | $(713,439) | | Fixed-rate senior notes payable at 4.25% (Level 2) | $(992,195) | $(849,990) | | Fixed-rate senior notes payable at 5.875% (Level 2) | $(846,940) | $(834,122) | | Fixed-rate senior notes payable at 6.25% (Level 2) | $(993,238) | $(975,490) | | Variable-rate term note payable at 5.00% (Level 3) | $0 | $0 | [16. Restructuring-Related Activities](index=27&type=section&id=16.%20RESTRUCTURING-RELATED%20ACTIVITIES) The company initiated restructuring in the U.K. and Europe segment, incurring **$68.2 million** of the estimated **$71.2 million** pre-tax charges as of June 25, 2023 - The Company began restructuring initiatives in 2022 to phase out and reduce processing volumes at multiple production facilities throughout the U.K. and Europe reportable segment[125](index=125&type=chunk) - Total estimated pre-tax charges are approximately **$71.2 million**, with **$45.7 million** estimated to result in cash outlays[126](index=126&type=chunk) These activities are expected to be substantially completed by the end of Q3 2023[126](index=126&type=chunk) **Restructuring Costs Incurred and Expected to be Incurred (In thousands)** | Cost Type | Moy Park | Pilgrim's Pride Ltd. | Pilgrim's Food Masters | Total | |:---|:---|:---|:---|:---| | Employee-related costs | $10,972 | $18,546 | $13,120 | $42,638 | | Asset impairment costs | $3,236 | $0 | $4,216 | $7,452 | | Contract termination costs | $248 | $708 | $371 | $1,327 | | Other exit and disposal costs | $7,414 | $6,425 | $5,968 | $19,807 | | **Total exit and disposal costs** | **$21,870** | **$25,679** | **$23,675** | **$71,224** | **Costs Incurred Since Earliest Implementation Date (In thousands)** | Cost Type | Moy Park | Pilgrim's Pride Ltd. | Pilgrim's Food Masters | Total | |:---|:---|:---|:---|:---| | Employee-related costs | $10,972 | $18,546 | $12,450 | $41,968 | | Asset impairment costs | $3,236 | $0 | $4,141 | $7,377 | | Contract termination costs | $248 | $0 | $0 | $248 | | Other exit and disposal costs | $6,224 | $6,425 | $5,968 | $18,617 | | **Total exit and disposal costs** | **$20,680** | **$24,971** | **$22,559** | **$68,210** | **Restructuring Expenses and Cash Outlays (Six Months Ended June 25, 2023, In thousands)** | Initiative | Expenses | Cash Outlays | |:---|:---|:---| | Moy Park | $1,355 | $6,174 | | Pilgrim's Pride Ltd. | $14,831 | $6,507 | | Pilgrim's Food Masters | $21,558 | $17,643 | | **Total** | **$37,744** | **$30,324** | [17. Related Party Transactions](index=29&type=section&id=17.%20RELATED%20PARTY%20TRANSACTIONS) Transactions with related parties, primarily JBS USA Food Company, showed increased sales to **$19.9 million** and increased cost of goods purchased to **$149.9 million** **Sales to Related Parties (Six Months Ended, In thousands)** | Related Party | June 25, 2023 | June 26, 2022 | |:---|:---|:---| | JBS USA Food Company | $16,524 | $9,597 | | JBS Australia Pty. Ltd | $1,690 | $1,396 | | JBS Chile Ltd. | $1,128 | $179 | | Other related parties | $543 | $856 | | **Total sales to related parties** | **$19,885** | **$12,028** | **Cost of Goods Purchased from Related Parties (Six Months Ended, In thousands)** | Related Party | June 25, 2023 | June 26, 2022 | |:---|:---|:---| | JBS USA Food Company | $128,414 | $113,154 | | Seara Meat B.V. | $9,638 | $13,131 | | Penasul UK LTD | $8,290 | $6,423 | | JBS Asia Co Limited | $1,639 | $3,921 | | Other related parties | $1,888 | $463 | | **Total cost of goods purchased from related parties** | **$149,869** | **$137,092** | **Accounts Receivable and Payable from Related Parties (In thousands)** | Metric | June 25, 2023 | December 25, 2022 | |:---|:---|:---| | Accounts receivable from related parties | $1,697 | $2,512 | | Accounts payable to related parties | $14,718 | $12,155 | [18. Reportable Segments](index=31&type=section&id=18.%20REPORTABLE%20SEGMENTS) The U.S. segment experienced an **11.0%** net sales decrease and a **98.9%** operating income decline, while U.K. and Europe and Mexico segments saw sales increases **Net Sales by Reportable Segment (Six Months Ended, In thousands)** | Segment | June 25, 2023 | June 26, 2022 | Change (In thousands) | % Change | |:---|:---|:---|:---|:---| | U.S. | $4,878,776 | $5,481,087 | $(602,311) | -11.0% | | U.K. and Europe | $2,550,014 | $2,437,034 | $112,980 | 4.6% | | Mexico | $1,044,929 | $953,922 | $91,007 | 9.5% | | **Total** | **$8,473,719** | **$8,872,043** | **$(398,324)** | **-4.5%** | **Reportable Segment Profit (Operating Income, Six Months Ended, In thousands)** | Segment | June 25, 2023 | June 26, 2022 | Change (In thousands) | % Change | |:---|:---|:---|:---|:---| | U.S. | $9,159 | $808,273 | $(799,114) | -98.9% | | U.K. and Europe | $27,774 | $(13,792) | $41,566 | -301.4% | | Mexico | $94,894 | $120,408 | $(25,514) | -21.2% | | **Total operating income** | **$131,614** | **$914,917** | **$(783,303)** | **-85.6%** | **Total Assets by Reportable Segment (In thousands)** | Segment | June 25, 2023 | December 25, 2022 | |:---|:---|:---| | U.S. | $7,215,483 | $6,847,209 | | U.K. and Europe | $4,297,959 | $4,033,990 | | Mexico | $1,429,248 | $1,292,056 | | Eliminations | $(3,020,179) | $(2,917,486) | | **Total assets** | **$9,922,511** | **$9,255,769** | [19. Commitments and Contingencies](index=32&type=section&id=19.%20COMMITMENTS%20AND%20CONTINGENCIES) The company faces various legal proceedings, including antitrust litigation and tax claims, with ongoing settlements and civil investigations by the DOJ - The Company is subject to various legal proceedings and claims, including antitrust and unfair competition lawsuits related to broiler chickens (Broiler Antitrust Litigation) and poultry worker compensation (Poultry Workers Class)[146](index=146&type=chunk)[149](index=149&type=chunk)[151](index=151&type=chunk) - PPC has settled all claims made by the Broiler DPPs, Broiler CIIPPs, and Broiler EUCPs for an aggregate total of **$195.5 million**, which have received final court approval[150](index=150&type=chunk) - The DOJ has opened civil investigations into human resources antitrust matters and grower contracts and payment practices, and has informed the Company that it is likely to file a civil complaint pursuant to at least one of these investigations[156](index=156&type=chunk)[157](index=157&type=chunk) - In Mexico, the company paid **$25.9 million** for a 2009 tax claim and is appealing a **$287.5 million** tax assessment related to the acquisition of Tyson de México[147](index=147&type=chunk)[148](index=148&type=chunk) [20. Business Interruption Insurance](index=36&type=section&id=20.%20BUSINESS%20INTERRUPTION%20INSURANCE) The company received **$52.5 million** and **$53.7 million** in business interruption insurance proceeds for the three and six months ended June 25, 2023, respectively - The Company received **$52.5 million** and **$53.7 million** in proceeds from business interruption insurance for the three and six months ended June 25, 2023, respectively[158](index=158&type=chunk) - For the six months ended June 25, 2023, **$35.9 million** in income from business interruption insurance was recognized in Cost of sales, with **$25.3 million** in the U.S. segment and **$10.6 million** in the U.K. and Europe segment[158](index=158&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=37&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, condition, and operational results, including an executive summary, segment results, liquidity, and EBITDA reconciliation [Executive Summary](index=37&type=section&id=Executive%20Summary) Pilgrim's Pride reported **$65.6 million** net income and **$8.5 billion** net sales for the six months ended June 25, 2023, facing inflation and geopolitical impacts while focusing on operational efficiencies **Key Financial Highlights (Six Months Ended June 25, 2023, In millions, except per share data)** | Metric | Amount | |:---|:---| | Net income attributable to Pilgrim's | $65.6 | | Diluted common share | $0.28 | | Income before tax | $42.5 | | Net sales | $8,473.7 | | Gross profit | $451.5 | | Cash provided by operating activities | $89.3 | | Consolidated operating margin | 1.6% | | EBITDA | $324.2 | | Adjusted EBITDA | $400.7 | - The company continued to experience challenges from inflation in commodity, labor, and other operating costs across all businesses during Q2 2023[161](index=161&type=chunk) - The Russia-Ukraine war continued to impact global feed ingredient and energy markets, driving up prices and disrupting supply chains, with Russia's suspension of the Black Sea Grain Initiative potentially exacerbating food prices[161](index=161&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) - U.K. market prices for pork products continued to recover in Q2 2023, reflecting pig shortages and leading to profitability in U.K. pig farming[174](index=174&type=chunk) [Results of Operations](index=39&type=section&id=Results%20of%20Operations) The company experienced a significant decline in profitability for both the three and six months ended June 25, 2023, driven by decreased U.S. sales and increased costs [Three Months Ended June 25, 2023 Compared to the Three Months Ended June 26, 2022](index=39&type=section&id=Three%20Months%20Ended%20June%2025%2C%202023%20Compared%20to%20the%20Three%20Months%20Ended%20June%2026%2C%202022) Total net sales decreased by **7.0% to $4.31 billion**, with U.S. sales declining by **15.6%**, while gross profit fell by **58.9%** and operating income by **80.5%** **Net Sales by Segment (Three Months Ended, In thousands)** | Segment | June 25, 2023 | June 26, 2022 | Change (In thousands) | % Change | |:---|:---|:---|:---|:---| | U.S. | $2,446,208 | $2,899,879 | $(453,671) | -15.6% | | U.K. and Europe | $1,310,750 | $1,245,052 | $65,698 | 5.3% | | Mexico | $551,133 | $486,717 | $64,416 | 13.2% | | **Total net sales** | **$4,308,091** | **$4,631,648** | **$(323,557)** | **-7.0%** | **Gross Profit by Segment (Three Months Ended, In thousands)** | Segment | June 25, 2023 | June 26, 2022 | Change (In thousands) | % Change | |:---|:---|:---|:---|:---| | U.S. | $114,105 | $544,636 | $(430,531) | -79.0% | | U.K. and Europe | $87,028 | $68,955 | $18,073 | 26.2% | | Mexico | $77,518 | $63,166 | $14,352 | 22.7% | | **Total gross profit** | **$278,425** | **$676,771** | **$(398,346)** | **-58.9%** | **Operating Income by Segment (Three Months Ended, In thousands)** | Segment | June 25, 2023 | June 26, 2022 | Change (In thousands) | % Change | |:---|:---|:---|:---|:---| | U.S. | $37,265 | $453,198 | $(415,933) | -91.8% | | U.K. and Europe | $2,513 | $7,848 | $(5,335) | -68.0% | | Mexico | $60,719 | $51,844 | $8,875 | 17.1% | | **Total operating income** | **$100,271** | **$512,904** | **$(412,633)** | **-80.5%** | - Restructuring activities resulted in losses of **$29.7 million** for the three months ended June 25, 2023, incurred by the U.K. and Europe reportable segment[190](index=190&type=chunk) [Six Months Ended June 25, 2023 Compared to the Six Months Ended June 26, 2022](index=42&type=section&id=Six%20Months%20Ended%20June%2025%2C%202023%20Compared%20to%20the%20Six%20Months%20Ended%20June%2026%2C%202022) Total net sales decreased by **4.5% to $8.47 billion**, with U.S. sales down **11.0%**, while gross profit declined by **63.0%** and operating income by **85.6%** **Net Sales by Segment (Six Months Ended, In thousands)** | Segment | June 25, 2023 | June 26, 2022 | Change (In thousands) | % Change | |:---|:---|:---|:---|:---| | U.S. | $4,878,776 | $5,481,087 | $(602,311) | -11.0% | | U.K. and Europe | $2,550,014 | $2,437,034 | $112,980 | 4.6% | | Mexico | $1,044,929 | $953,922 | $91,007 | 9.5% | | **Total net sales** | **$8,473,719** | **$8,872,043** | **$(398,324)** | **-4.5%** | **Gross Profit by Segment (Six Months Ended, In thousands)** | Segment | June 25, 2023 | June 26, 2022 | Change (In thousands) | % Change | |:---|:---|:---|:---|:---| | U.S. | $152,434 | $966,640 | $(814,206) | -84.2% | | U.K. and Europe | $171,221 | $108,034 | $63,187 | 58.5% | | Mexico | $128,030 | $144,049 | $(16,019) | -11.1% | | **Total gross profit** | **$451,472** | **$1,218,751** | **$(767,279)** | **-63.0%** | **Operating Income by Segment (Six Months Ended, In thousands)** | Segment | June 25, 2023 | June 26, 2022 | Change (In thousands) | % Change | |:---|:---|:---|:---|:---| | U.S. | $9,159 | $808,273 | $(799,114) | -98.9% | | U.K. and Europe | $27,774 | $(13,792) | $41,566 | -301.4% | | Mexico | $94,894 | $120,408 | $(25,514) | -21.2% | | **Total operating income** | **$131,614** | **$914,917** | **$(783,303)** | **-85.6%** | - Restructuring activities resulted in losses of **$37.7 million** for the six months ended June 25, 2023, incurred by the U.K. and Europe reportable segment[206](index=206&type=chunk) [Liquidity and Capital Resources](index=45&type=section&id=Liquidity%20and%20Capital%20Resources) Operating cash flow significantly decreased to **$89.3 million**, while financing activities provided **$500.4 million** from new long-term debt, with domestic assets pledged as collateral **Available Sources of Liquidity (June 25, 2023, In millions)** | Source | Facility Amount | Amount Outstanding | Amount Available | |:---|:---|:---|:---| | Cash and cash equivalents | $0 | $0 | $731.0 | | U.S. Credit Facility | $800.0 | $0 | $774.7 | | Mexico Credit Facility | $87.3 | $0 | $87.3 | | U.K. and Europe Revolver Facility | $190.7 | $0 | $190.7 | **Cash Flows from Operating Activities (Six Months Ended, In millions)** | Metric | June 25, 2023 | June 26, 2022 | |:---|:---|:---| | Net income | $66.5 | $642.6 | | Net noncash expenses | $151.0 | $177.2 | | Changes in operating assets and liabilities | $(128.9) | $(396.6) | | **Cash provided by operating activities** | **$89.3** | **$421.2** | **Cash Flows from Investing Activities (Six Months Ended, In millions)** | Metric | June 25, 2023 | June 26, 2022 | |:---|:---|:---| | Acquisitions of property, plant and equipment | $(286.6) | $(196.2) | | Proceeds from property insurance recoveries | $20.7 | $0 | | Proceeds from property disposals | $15.0 | $2.4 | | Purchase of acquired businesses, net of cash acquired | $0 | $(4.9) | | **Cash used in investing activities** | **$(250.9)** | **$(198.7)** | **Cash Flows from Financing Activities (Six Months Ended, In millions)** | Metric | June 25, 2023 | June 26, 2022 | |:---|:---|:---| | Proceeds from revolving line of credit and long-term borrowings | $1,078.1 | $351.1 | | Payments on revolving line of credit, long-term borrowings and finance lease obligations | $(565.7) | $(170.0) | | Payments of capitalized loan costs | $(10.4) | $(3.1) | | Distribution from Tax Sharing Agreement with JBS USA Holdings | $(1.6) | $(2.0) | | Purchase of common stock under share repurchase program | $0 | $(120.0) | | **Cash provided by financing activities** | **$500.4** | **$56.0** | - Substantially all domestic inventories and domestic fixed assets are pledged as collateral to secure the obligations under the U.S. Credit Facility[223](index=223&type=chunk) [Reconciliation of Net Income to EBITDA and Adjusted EBITDA](index=48&type=section&id=Reconciliation%20of%20Net%20Income%20to%20EBITDA%20and%20Adjusted%20EBITDA) For the six months ended June 25, 2023, EBITDA was **$324.2 million** and Adjusted EBITDA was **$400.7 million**, reflecting adjustments for non-recurring items **Reconciliation of Net Income to EBITDA and Adjusted EBITDA (Six Months Ended June 25, 2023, In thousands)** | Metric | Amount | |:---|:---| | Net income | $66,539 | | Add: Interest expense, net | $78,586 | | Add: Income tax benefit | $(24,065) | | Add: Depreciation and amortization | $203,114 | | **EBITDA** | **$324,174** | | Add: Foreign currency transaction losses | $34,538 | | Add: Litigation settlements | $24,200 | | Add: Restructuring activities losses | $37,744 | | Minus: Property insurance recoveries for Mayfield tornado losses | $(19,086) | | Minus: Net income attributable to noncontrolling interest | $(896) | | **Adjusted EBITDA** | **$400,674** | - Adjusted EBITDA is a non-GAAP measure calculated by adding back certain expenses and deducting certain income items that are not indicative of ongoing operating performance, such as foreign currency transaction losses, litigation settlements, restructuring activities losses, and property insurance recoveries[231](index=231&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=50&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section details the company's exposure to market risks from commodity prices, interest rates, and foreign currency exchange rates, and management's mitigation strategies **Impact of 10% Increase in Feed Ingredient Prices (Three Months Ended June 25, 2023, In thousands)** | Metric | Amount | Impact of 10% Increase | |:---|:---|:---| | Feed ingredient purchases | $1,088,645 | $108,865 | | Feed ingredient inventory | $224,940 | $22,494 | | Net commodity derivative assets | $58,047 | $5,805 | - A hypothetical **10% increase** in interest rates would have decreased the fair value of the company's fixed-rate debt by **$113.3 million** as of June 25, 2023[242](index=242&type=chunk) **Impact of 10% Change in Mexican Peso Exchange Rate (Three Months Ended June 25, 2023, In thousands)** | Metric | Impact of 10% Deterioration | Impact of 10% Appreciation | |:---|:---|:---| | Foreign currency remeasurement gain (loss) | $(15,306) | $18,708 | | Exchange rate of Mexican peso to the U.S. dollar (As reported) | 17.17 | 17.17 | | Exchange rate of Mexican peso to the U.S. dollar (Hypothetical 10% change) | 18.89 | 15.46 | - A **10% weakening** in the British pound against the U.S. dollar exchange rate would cause a decrease of **$385.2 million** in the net assets of the U.K. and Europe subsidiaries, while a **10% strengthening** would cause an increase of **$470.8 million**[248](index=248&type=chunk) - The company is experiencing pronounced inflation in the U.S., Mexico, and most of Europe, and is responding by negotiating with customers for cost recovery and focusing on operational efficiencies[251](index=251&type=chunk) [Item 4. Controls and Procedures](index=54&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 25, 2023, with no material changes in internal control over financial reporting - As of June 25, 2023, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective[258](index=258&type=chunk) - No change in the Company's internal control over financial reporting occurred during the three months ended June 25, 2023, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting[259](index=259&type=chunk) [PART II. OTHER INFORMATION](index=55&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section includes legal proceedings, risk factors, other information, and a list of exhibits filed with the quarterly report [Item 1. Legal Proceedings](index=55&type=section&id=Item%201.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 19, 'Commitments and Contingencies,' in Part I, Item 1 of this quarterly report - Information regarding legal proceedings is incorporated by reference from Note 19, 'Commitments and Contingencies,' in Part I, Item 1 of this quarterly report[261](index=261&type=chunk) [Item 1A. Risk Factors](index=55&type=section&id=Item%201A.%20Risk%20Factors) This section highlights potential risks, specifically emphasizing that labor shortages or rising employee-related costs could materially and adversely impact the company's operations - Labor shortages and increased turnover or increases in employee and employee-related costs could have adverse effects on the company's profitability, ability to operate efficiently, and overall financial condition[263](index=263&type=chunk) - Additional potential risks and uncertainties are discussed in 'Part I—Item 1A—Risk Factors' and 'Part II—Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations' in the company's 2022 Annual Report[262](index=262&type=chunk) [Item 5. Other Information](index=55&type=section&id=Item%205.%20Other%20Information) No directors or executive officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the fiscal quarter ended June 25, 2023 - None of the Company's directors or executive officers adopted, modified, or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement during the Company's fiscal quarter ended June 25, 2023[264](index=264&type=chunk) [Item 6. Exhibits](index=56&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, indentures for senior notes, and executive officer certifications - The exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, Indentures for Senior Notes (including the **6.25%** notes due 2033), the First Amendment to the Fifth Amended and Restated Credit Agreement, and certifications from the Principal Executive Officer and Principal Financial Officer[267](index=267&type=chunk) [SIGNATURES](index=57&type=section&id=SIGNATURES) The report is duly signed on behalf of Pilgrim's Pride Corporation by Matthew Galvanoni, Chief Financial Officer and Chief Accounting Officer, on July 26, 2023 - The report was signed on July 26, 2023, by Matthew Galvanoni, Chief Financial Officer and Chief Accounting Officer of Pilgrim's Pride Corporation[270](index=270&type=chunk)

Pilgrim's Pride Corporation (NASDAQ:PPC) Q1 2023 Results Conference Call April 27, 2023 9:00 AM ET Company Participants Andy Rojeski - Head of Strategy, Investor Relations Fabio Sandri - President and CEO Matthew Galvanoni - VP, CFO and CAO Conference Call Participants Ben Theurer - Barclays Ben Bienvenu - Stephens Peter Galbo - Bank of America Adam Samuelson - Goldman Sachs Andrew Strelzik - BMO Operator Good morning, and welcome to the First Quarter 2023 Pilgrim's Pride Earnings Conference Call and Webcas ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q | | | For the quarterly period ended March 26, 2023 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ Commission File number 1-9273 | Securities registered pursuant to Section 12(b) of the Act: | | | | --- | --- | --- | | Title of each class | Trading Symbol | Name of Exchange on which Registered | | Common Stock, Par Value $0.01 | PP ...

PART I Part I provides an overview of business operations, risks, property details, and legal/regulatory disclosures [Business](index=4&type=section&id=Item%201.%20Business) PPC is a vertically integrated global protein company operating in the U.S., U.K. and Europe, and Mexico segments, offering diverse chicken and pork products - Pilgrim's Pride Corporation is a **vertically integrated global protein company** engaged in the production, processing, marketing, and distribution of fresh, frozen, and value-added chicken and pork products[12](index=12&type=chunk) - The company serves over **51,100 customers** across the U.S., U.K. and Europe, Mexico, and over 120 other countries, with sales efforts largely targeted towards the foodservice industry and retail customers[13](index=13&type=chunk) - PPC operates in **three reportable segments**: U.S., U.K. and Europe, and Mexico, producing or purchasing for resale chicken and pork products[17](index=17&type=chunk) - In 2021, PPC acquired Pilgrim's Food Masters (PFM) for **£698.8 million ($958.9 million)**, a leading manufacturer of branded and private label meats and ready meals in the U.K. and Republic of Ireland[15](index=15&type=chunk) 2022 Product Sales by Segment | Segment | Fresh Products (%) | Prepared Foods (%) | Export Products (%) | | :-------------- | :----------------- | :----------------- | :------------------ | | U.S. | 80.2 | 10.3 | 5.1 | | U.K. and Europe | 18.6 | 63.7 | 14.6 | | Mexico | 86.0 | 9.1 | N/A | Net Sales by Product Line and Segment (2020-2022, in thousands) | Product Line / Segment | 2022 ($) | 2021 ($) | 2020 ($) | | :--------------------- | :---------- | :---------- | :---------- | | **U.S. reportable segment:** | | | | | Fresh products | 8,624,421 | 7,264,448 | 6,137,264 | | Prepared foods | 1,107,734 | 898,614 | 714,563 | | Export | 552,823 | 459,371 | 306,478 | | Other products | 463,372 | 491,446 | 337,712 | | **Total U.S.** | **10,748,350**| **9,113,879** | **7,496,017** | | **U.K. and Europe reportable segment:** | | | | | Fresh products | 908,882 | 1,151,330 | 1,594,373 | | Prepared foods | 3,104,347 | 2,214,180 | 1,237,486 | | Export | 712,685 | 458,588 | 297,414 | | Other products | 148,824 | 109,964 | 145,019 | | **Total U.K. & Europe** | **4,874,738** | **3,934,062** | **3,274,292** | | **Mexico reportable segment:** | | | | | Fresh products | 1,587,809 | 1,515,453 | 1,210,952 | | Prepared foods | 167,589 | 128,208 | 66,572 | | Other products | 89,891 | 85,856 | 44,068 | | **Total Mexico** | **1,845,289** | **1,729,517** | **1,321,592** | | **Total net sales** | **17,468,377**| **14,777,458**| **12,091,901**| - Raw materials, primarily corn, soybean meal, and wheat, accounted for approximately **46.1%**, **35.2%**, and **4.6%** of feed costs in 2022, respectively, with derivative financial instruments used to mitigate price volatility[26](index=26&type=chunk) - The company employed over **61,500 persons** as of December 25, 2022, focusing on health and safety, diversity, retention, career development, and community support[37](index=37&type=chunk)[38](index=38&type=chunk)[39](index=39&type=chunk)[40](index=40&type=chunk) [Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from commodity price volatility, disease outbreaks, operational challenges, regulatory compliance, and financial leverage - The **COVID-19 pandemic continues to pose risks**, including reduced production, labor shortages, shifts in demand, and potential negative impacts on brand reputation[46](index=46&type=chunk)[47](index=47&type=chunk)[48](index=48&type=chunk)[49](index=49&type=chunk) - Profitability is materially affected by **cyclical fluctuations in commodity prices** of feed ingredients and market prices of chicken and pork, which derivative instruments do not always successfully manage[51](index=51&type=chunk)[52](index=52&type=chunk)[53](index=53&type=chunk) - **Outbreaks of livestock diseases** (e.g., avian influenza, African swine fever) can significantly disrupt operations, reduce demand, and lead to governmental restrictions or destruction of flocks/herds[54](index=54&type=chunk)[55](index=55&type=chunk)[56](index=56&type=chunk) - **Product contamination risks** can lead to product liability claims, recalls, adverse publicity, and increased regulatory scrutiny, potentially not fully covered by insurance[57](index=57&type=chunk)[58](index=58&type=chunk)[59](index=59&type=chunk)[60](index=60&type=chunk) - **Foreign operations expose the company to currency exchange rate fluctuations, trade barriers, and regulatory changes**, including data protection regulations like GDPR[61](index=61&type=chunk)[62](index=62&type=chunk)[63](index=63&type=chunk)[64](index=64&type=chunk) - The company faces **intense competition** in the chicken and pork industries, where failure to manage costs and maintain efficiency could adversely affect business[65](index=65&type=chunk) - **Dependence on contract growers** and independent producers for livestock supply means failure to attract or maintain these relationships could negatively impact production[77](index=77&type=chunk)[78](index=78&type=chunk) - **Climate change poses long-term risks**, including impacts on agricultural productivity, increased extreme weather, potential regulatory requirements for emissions reduction, and higher energy/compliance costs[80](index=80&type=chunk) - Significant leverage (approximately **$483.7 million** secured and **$2.7 billion** unsecured indebtedness as of December 25, 2022) could affect financial flexibility, debt servicing ability, and access to additional financing[102](index=102&type=chunk) - The **phase-out of LIBOR** by June 30, 2023, and its replacement with SOFR, requires renegotiation of credit agreements, which may impact interest rates and financial results[106](index=106&type=chunk)[107](index=107&type=chunk) - **Weak or unstable national/global economic conditions**, including inflation, the Russia-Ukraine war, and disruptions in credit markets, can negatively affect consumer demand, raw material costs, and supply chains[109](index=109&type=chunk)[110](index=110&type=chunk)[111](index=111&type=chunk)[112](index=112&type=chunk) [Unresolved Staff Comments](index=23&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reported no unresolved staff comments from the SEC - No unresolved staff comments were reported[117](index=117&type=chunk) [Properties](index=24&type=section&id=Item%202.%20Properties) Pilgrim's Pride Corporation operates a comprehensive network of owned and leased facilities across its chicken, pork, lamb, and prepared meals operations Operating Facilities Overview (as of December 25, 2022) | Operation Type | Owned | Leased | Total Facilities | Capacity | Unit of Measure | Average Utilization | | :------------------------- | :---- | :----- | :--------------- | :------------------- | :-------------- | :------------------ | | Chicken Fresh Processing | 35 | 1 | 36 | 8.7 million | Birds per day | 88.4% | | Chicken Prepared Foods | 12 | 2 | 14 | 37.3 million | Tons per year | 95.9% | | Hatcheries | 45 | 2 | 47 | 3.2 billion | Eggs per year | 90.9% | | Other Chicken Operations | 47 | 2 | 49 | 16.0 million | Tons per year | 72.0% | | Pork Fresh Processing | 3 | — | 3 | 10,913 | Pigs per day | 88.6% | | Pork Prepared Foods | 9 | — | 9 | 269,488 | Tons per year | 70.8% | | Other Pork Operations | 2 | — | 2 | 11,023 | Pigs per day | 100.0% | | Lamb Fresh Processing | 1 | — | 1 | 4,960 | Lambs per day | 64.4% | | Lamb Prepared Foods | 1 | — | 1 | 8,530 | Tons per year | 46.6% | | Prepared Meals Facilities | 5 | 4 | 9 | 288,350 | Tons per year | 68.1% | | Distribution Centers & Other | 11 | 20 | 31 | NA | NA | NA | - **Substantially all U.S. property, plant, and equipment** are used as collateral for the secured U.S. credit facility[119](index=119&type=chunk) [Legal Proceedings](index=25&type=section&id=Item%203.%20Legal%20Proceedings) Information regarding legal proceedings is incorporated by reference from Note 21, Commitments and Contingencies, in the Consolidated Financial Statements - Information on legal proceedings is found in Note 21. Commitments and Contingencies[122](index=122&type=chunk) [Mine Safety Disclosures](index=25&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) The company has no disclosures related to mine safety - No mine safety disclosures were reported[123](index=123&type=chunk) PART II Part II covers market information for common equity, financial data, management's discussion and analysis, and market risk disclosures [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=26&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) PPC common stock is listed on Nasdaq, with JBS USA holding a controlling interest and no current dividend payment intentions - Pilgrim's Pride Corporation's common stock is listed on the Nasdaq Global Select Market under the symbol "**PPC**"[126](index=126&type=chunk) - As of February 9, 2023, there were approximately **59,300 holders** of the Company's common stock[126](index=126&type=chunk) - The Company has **no current intention to pay dividends**, with any change dependent on future conditions and subject to restrictions from credit facilities and senior note indentures[127](index=127&type=chunk)[128](index=128&type=chunk) - JBS S.A., through its indirect wholly-owned subsidiaries, beneficially owns **82.65%** of PPC's outstanding common stock, granting it control over management, policies, and financing decisions[12](index=12&type=chunk) Cumulative 5-Year Total Stockholder Return (December 31, 2017 - December 25, 2022) | Date | PPC ($) | Russell 2000 ($) | Peer Group ($) | | :--------- | :------ | :--------------- | :------------- | | 12/31/17 | 100.00 | 100.00 | 100.00 | | 06/30/18 | 64.18 | 107.66 | 92.60 | | 12/30/18 | 50.19 | 88.99 | 86.69 | | 06/30/19 | 81.75 | 104.10 | 107.30 | | 12/29/19 | 106.15 | 111.70 | 121.92 | | 06/30/20 | 54.38 | 97.20 | 101.96 | | 12/27/20 | 62.30 | 134.00 | 105.86 | | 06/30/21 | 71.41 | 157.49 | 114.89 | | 12/26/21 | 88.70 | 153.85 | 125.43 | | 06/30/22 | 100.55 | 117.81 | 126.90 | | 12/25/22 | 76.63 | 122.41 | 106.20 | [Selected Financial Data](index=27&type=section&id=Item%206.%20Selected%20Financial%20Data) This item is reserved and contains no selected financial data [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=28&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) PPC achieved strong 2022 financial results with **$745.9 million** net income and **$1.0 billion** profit before tax, driven by **18.2%** net sales growth and improved operating income Key Financial Highlights (2022) | Metric | Amount (Millions USD) | | :---------------------------------------- | :-------------------- | | Net income attributable to PPC | $745.9 | | Diluted EPS | $3.10 | | Profit before tax | $1,000.0 | | Gross profit | $1,800.0 | | Cash from operations | $669.9 | | Operating margins | 6.7% | | EBITDA | $1,570.0 | | Adjusted EBITDA | $1,650.0 | - In 2022, the company faced **significant challenges from inflation** in commodity, labor, and other operating costs, exacerbated by the Russia-Ukraine war and U.K. labor shortages[138](index=138&type=chunk) - The company responded to challenges by **negotiating with customers for cost recovery and focusing on operational initiatives** for labor efficiencies, agricultural performance, and improved yields[139](index=139&type=chunk) - The **COVID-19 pandemic continued to cause intermittent disruptions** in 2022, including supply chain issues, increased broiler and chick costs, and higher payroll and benefits costs, though demand shifted back towards pre-pandemic levels[145](index=145&type=chunk)[147](index=147&type=chunk) - **Average chicken market prices were higher in the first half of 2022** due to stable demand and low cold storage, but declined in the second half due to increased production and stagnant volume demand[150](index=150&type=chunk)[151](index=151&type=chunk) - U.K. chicken market experienced **unprecedented cost increases** in feed, utilities, and labor in the first three quarters of 2022, largely offset by customer negotiations[152](index=152&type=chunk) - **Mexico chicken commodity prices increased** in 2022 due to demand outpacing supply and higher production costs from feed ingredients and avian influenza impacts[153](index=153&type=chunk) - U.K. pork product market prices recovered in 2022, increasing **44%** over the year, supported by E.U. market recovery and clearing pig backlogs, though production costs still exceeded market prices[155](index=155&type=chunk) - The company is committed to sustainability, aiming for **net zero greenhouse gas emissions by 2040**, supported by **$1.0 billion** in sustainability-linked bonds requiring a **30% reduction** in Scope 1 and 2 emissions intensity by 2030[157](index=157&type=chunk)[158](index=158&type=chunk) Net Sales by Reportable Segment (2022 vs. 2021) | Segment | 2022 Net Sales ($ thousands) | Change from 2021 ($ thousands) | Change from 2021 (%) | | :-------------- | :--------------------------- | :----------------------------- | :------------------- | | U.S. | 10,748,350 | 1,634,471 | 17.9% | | U.K. and Europe | 4,874,738 | 940,676 | 23.9% | | Mexico | 1,845,289 | 115,772 | 6.7% | | **Total** | **17,468,377** | **2,690,919** | **18.2%** | Gross Profit and Operating Income (2022 vs. 2021) | Metric | 2022 ($ thousands) | Change from 2021 ($ thousands) | Change from 2021 (%) | | :--------------- | :----------------- | :----------------------------- | :------------------- | | Gross profit | 1,811,803 | 445,976 | 32.7% | | Operating income | 1,176,595 | 965,431 | 457.2% | - U.S. operating income increased significantly by **6,521.8%** to **$1,094.0 million** in 2022, primarily due to a **$622.1 million** net decrease in legal settlement recognition[170](index=170&type=chunk) Liquidity Sources (as of December 25, 2022, in millions) | Source | Amount ($) | | :-------------------------------------- | :--------- | | Cash and cash equivalents | 434.8 | | U.S. Credit Facility Revolving Note Payable (available) | 765.0 | | Mexico Credit Facility (available) | 77.5 | | U.K. and Europe Revolver Facility (available) | 124.5 | Cash Flows from Operating Activities (2022 vs. 2021, in millions) | Metric | 2022 ($) | 2021 ($) | | :--------------------------- | :------- | :------- | | Net income | 746.5 | 31.3 | | Cash provided by operations | 669.9 | 326.5 | - Cash provided by operating activities increased significantly in 2022 due to higher net income and changes in operating assets and liabilities, including a **$472.2 million** use of cash for inventories due to higher input costs[178](index=178&type=chunk)[182](index=182&type=chunk) - Capital expenditures are projected to be **$400 million to $500 million** in 2023, funded by cash flow from operations and revolving credit lines, primarily for growth, efficiency, and cost reduction[189](index=189&type=chunk) Contractual Obligations (as of December 25, 2022, in thousands) | Obligation Type | Total ($) | Less than One Year ($) | One to Three Years ($) | Three to Five Years ($) | Greater than Five Years ($) | | :------------------- | :---------- | :--------------------- | :--------------------- | :---------------------- | :-------------------------- | | Long-term debt | 3,230,078 | 24,453 | 50,625 | 1,255,000 | 1,900,000 | | Interest | 931,235 | 130,195 | 259,369 | 251,171 | 290,500 | | Finance leases | 3,867 | 1,064 | 1,471 | 1,079 | 253 | | Operating leases | 345,183 | 90,356 | 122,993 | 71,651 | 60,183 | | Derivative liabilities | 18,917 | 18,917 | — | — | — | | Purchase obligations | 721,753 | 588,077 | 117,279 | 3,890 | 12,507 | | **Total** | **5,251,033** | **853,062** | **551,737** | **1,582,791** | **2,263,443** | Reconciliation of Net Income to EBITDA and Adjusted EBITDA (2022 vs. 2021, in thousands) | Metric | 2022 ($) | 2021 ($) | | :---------------------------------------- | :---------- | :---------- | | Net income | 746,538 | 31,268 | | EBITDA | 1,572,227 | 612,950 | | Adjusted EBITDA | 1,648,356 | 1,289,028 | Reconciliation of Adjusted Net Income (2022 vs. 2021, in thousands) | Metric | 2022 ($) | 2021 ($) | | :---------------------------------------- | :---------- | :---------- | | Net income attributable to Pilgrim's | 745,930 | 31,000 | | Adjusted net income attributable to Pilgrim's | 803,552 | 557,381 | | Adjusted net income per diluted share | $3.34 | $2.28 | [Quantitative and Qualitative Disclosures about Market Risk](index=42&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company faces market risks from commodity prices, interest rates, and foreign currency, using derivatives to mitigate these exposures - Market risk-sensitive instruments and positions are primarily exposed to potential loss from adverse changes in **commodity prices, foreign currency exchange rates, interest rates, and credit quality** of available-for-sale securities[217](index=217&type=chunk) Impact of 10% Increase in Feed Ingredient Prices (Year Ended December 25, 2022, in thousands) | Item | Amount ($) | Impact of 10% Increase ($) | | :------------------------- | :---------- | :------------------------- | | Feed ingredient purchases | 4,536,861 | 453,686 | | Feed ingredient inventory | 240,151 | 24,015 | - A hypothetical **10% increase** in interest rates would decrease the fair value of fixed-rate debt by **$73.5 million** as of December 25, 2022[222](index=222&type=chunk) - Variable-rate debt constitutes approximately **15.2%** of total debt, and a **100 basis point increase** in interest rates would increase interest expense by **$7.2 million** for the year ended December 25, 2022[223](index=223&type=chunk) Impact of 10% Change in Mexican Peso Exchange Rate (Year Ended December 25, 2022, in thousands) | Scenario | Foreign Currency Remeasurement Gain (Loss) ($) | | :-------------------------------------- | :--------------------------------------------- | | 10% Deterioration in Exchange Rate | (4,672) | | 10% Appreciation in Exchange Rate | 5,710 | - A **10% weakening** in the British pound against the U.S. dollar would decrease the net assets of U.K. and Europe subsidiaries by **$240.9 million**, while a **10% strengthening** would increase them by **$294.4 million**[228](index=228&type=chunk) - Global operations were **significantly impacted by inflation** in 2022, leading to price negotiations with customers to mitigate increased input costs, with moderate inflation anticipated for 2023[232](index=232&type=chunk) [Financial Statements and Supplementary Data](index=45&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents audited consolidated financial statements, including balance sheets, income statements, cash flows, and extensive notes, with an unqualified auditor's opinion - KPMG LLP issued an **unqualified opinion** on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 25, 2022[236](index=236&type=chunk) - A **critical audit matter** identified was the evaluation of the company's qualitative **goodwill impairment assessment**, particularly for reporting units in the U.K. and Europe segment, due to subjective auditor judgment[243](index=243&type=chunk)[244](index=244&type=chunk) Consolidated Balance Sheets (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :-------------------------------------- | :--------------- | :--------------- | | **Assets:** | | | | Total current assets | 3,891,618 | 3,305,954 | | Goodwill | 1,227,944 | 1,337,252 | | Property, plant and equipment, net | 2,940,846 | 2,917,806 | | Total assets | 9,255,769 | 8,913,205 | | **Liabilities & Stockholders' Equity:** | | | | Total current liabilities | 2,570,169 | 2,390,823 | | Long-term debt, less current maturities | 3,166,432 | 3,191,161 | | Total liabilities | 6,402,493 | 6,324,271 | | Total stockholders' equity | 2,853,276 | 2,588,934 | Consolidated Statements of Income (Years Ended December 25, 2022, December 26, 2021, December 27, 2020, in thousands) | Item | 2022 ($) | 2021 ($) | 2020 ($) | | :-------------------------------------- | :----------- | :----------- | :----------- | | Net sales | 17,468,377 | 14,777,458 | 12,091,901 | | Gross profit | 1,811,803 | 1,365,827 | 838,196 | | Operating income | 1,176,595 | 211,164 | 245,463 | | Income before income taxes | 1,025,473 | 92,390 | 161,825 | | Net income attributable to Pilgrim's Pride Corporation | 745,930 | 31,000 | 94,757 | | Diluted EPS | $3.10 | $0.13 | $0.39 | Consolidated Statements of Cash Flows (Years Ended December 25, 2022, December 26, 2021, December 27, 2020, in thousands) | Item | 2022 ($) | 2021 ($) | 2020 ($) | | :-------------------------------------- | :----------- | :----------- | :----------- | | Cash provided by operating activities | 669,863 | 326,459 | 724,247 | | Cash used in investing activities | (445,252) | (1,323,713) | (327,002) | | Cash provided by (used in) financing activities | (232,014) | 901,311 | (136,708) | | End of year cash and cash equivalents | 434,759 | 450,121 | 548,406 | - The company acquired Pilgrim's Food Masters (PFM) for **$958.9 million** in September 2021, and Randall Parker Foods Limited (RPF) for **$13.4 million** in November 2021, both included in the U.K. and Europe segment[317](index=317&type=chunk)[324](index=324&type=chunk) - Goodwill balance as of December 25, 2022, was **$1.2 billion**, with **$1.1 billion** related to the U.K. and Europe segment, and no goodwill impairment was deemed necessary after qualitative assessment[243](index=243&type=chunk)[293](index=293&type=chunk)[363](index=363&type=chunk) - Total net sales to customers by customer location in 2022 were **$10.2 billion** for U.S., **$4.8 billion** for Europe, and **$1.9 billion** for Mexico[489](index=489&type=chunk) - In 2022, the company initiated a restructuring initiative in the U.K. and Europe segment, expected to incur total pre-tax charges of approximately **$58.0 million**, with **$30.5 million** recognized as expenses in 2022[469](index=469&type=chunk)[471](index=471&type=chunk) - The company is involved in various legal proceedings, including antitrust litigation related to broiler chickens and grower services, and tax claims in Mexico, with settlements for broiler antitrust litigation totaling **$195.5 million**[498](index=498&type=chunk)[499](index=499&type=chunk)[501](index=501&type=chunk)[496](index=496&type=chunk)[497](index=497&type=chunk) [1. Business and Summary of Significant Accounting Policies](index=52&type=section&id=1.%20Business%20and%20Summary%20of%20Significant%20Accounting%20Policies) PPC is a global chicken producer operating on a 52/53-week fiscal year, recognizing revenue upon product transfer and valuing inventories at lower of cost or net realizable value - Pilgrim's Pride Corporation is **one of the largest chicken producers globally**, with operations in the U.S., U.K., Mexico, France, Puerto Rico, the Netherlands, and the Republic of Ireland, selling fresh, prepared, and other products to various customers[261](index=261&type=chunk) - The company operates on a **52/53-week fiscal year** ending on the Sunday falling on or before December 31[262](index=262&type=chunk) - The **functional currency** for U.S. and Mexico operations is the U.S. dollar, for U.K. operations is the British pound, and for France, Netherlands, and Republic of Ireland operations is the euro[265](index=265&type=chunk) - **Revenue is recognized when control of products transfers** to the customer, typically upon destination, with minimal variable consideration due to commodity market pricing[268](index=268&type=chunk)[269](index=269&type=chunk) - Inventories are stated at the **lower of cost or net realizable value**, with costs allocated using a by-product costing technique[281](index=281&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk) - Goodwill and indefinite-lived intangible assets are tested for impairment annually or more frequently if indicators arise; **no impairment was identified** as of December 25, 2022[293](index=293&type=chunk) - The company uses **derivative financial instruments** (futures, forwards, options, swaps) to mitigate exposure to changes in commodity prices, foreign currency exchange rates, and interest rates[303](index=303&type=chunk) [2. Business Acquisitions](index=59&type=section&id=2.%20Business%20Acquisitions) In 2021, PPC acquired Pilgrim's Food Masters for **$958.9 million** and Randall Parker Foods for **$13.4 million**, expanding its European footprint and product diversification - On September 24, 2021, the Company acquired **100%** of Pilgrim's Food Masters (PFM) for **$958.9 million**, solidifying its position as a leading European food company and diversifying its product mix[317](index=317&type=chunk) - PFM's acquired operations generated **$1.0 billion** in net sales and **$8.4 million** in net income during 2022[318](index=318&type=chunk) - The PFM acquisition resulted in **$353.4 million** in goodwill, attributed to strategic and synergistic benefits like complementary product offerings and enhanced market position[319](index=319&type=chunk)[320](index=320&type=chunk) - On November 12, 2021, the Company acquired Randall Parker Foods Limited (RPF) for **$13.4 million**, integrating lamb processing and retail packaging operations into its U.K. and Europe segment[324](index=324&type=chunk) PFM Acquisition: Fair Values of Assets Acquired and Liabilities Assumed (as of September 24, 2021, in thousands) | Item | Amount ($) | | :---------------------------------- | :--------- | | Cash and cash equivalents | 113 | | Trade accounts and other receivables| 7,387 | | Inventories | 60,341 | | Property, plant and equipment | 247,133 | | Identified intangible assets | 415,157 | | Total assets acquired | 746,841 | | Total liabilities assumed | 141,331 | | Identified net assets | 605,510 | | Goodwill | 353,397 | | **Total consideration transferred** | **958,907** | [3. Revenue Recognition](index=61&type=section&id=3.%20Revenue%20Recognition) Revenue is recognized when control of products transfers to the customer, typically at destination, with performance obligations fulfilled rapidly - **Revenue is recognized when a customer's order is accepted and control of the products transfers**, typically at the destination point, or at the company's facilities for customer pick-up[325](index=325&type=chunk)[326](index=326&type=chunk) - The company's **performance obligations are usually fulfilled within days to weeks** of order acceptance, with minimal variable consideration due to commodity market pricing[326](index=326&type=chunk)[327](index=327&type=chunk) Disaggregated Revenue by Product Line and Segment (2022, in thousands) | Segment | Fresh ($) | Prepared ($) | Export ($) | Other ($) | Total Net Sales ($) | | :-------------- | :----------- | :----------- | :----------- | :--------- | :------------------ | | U.S. | 8,624,421 | 1,107,734 | 552,823 | 463,372 | 10,748,350 | | U.K. and Europe | 908,882 | 3,104,347 | 712,685 | 148,824 | 4,874,738 | | Mexico | 1,587,809 | 167,589 | — | 89,891 | 1,845,289 | | **Total** | **11,121,112** | **4,379,670**| **1,265,508**| **702,087**| **17,468,377** | Revenue Contract Liabilities (2022 vs. 2021, in thousands) | Item | 2022 ($) | 2021 ($) | | :-------------------------------------- | :------- | :------- | | Balance, beginning of year | 22,321 | 65,918 | | Revenue recognized | (19,712) | (60,764) | | Cash received, excluding amounts recognized as revenue during the period | 31,877 | 17,167 | | **Balance, end of year** | **34,486** | **22,321** | [4. Leases](index=62&type=section&id=4.%20Leases) The company holds operating lease agreements for various facilities across its segments, along with a limited number of finance leases - The company has **operating lease agreements** for various facilities across its segments, along with a limited number of **finance leases** in the U.S[335](index=335&type=chunk)[336](index=336&type=chunk) Net Lease Cost (2022 vs. 2021, in thousands) | Item | 2022 ($) | 2021 ($) | | :-------------------------- | :------- | :------- | | Operating lease cost | 98,353 | 93,024 | | Amortization of finance lease assets | 472 | 745 | | Interest on finance leases | 132 | 128 | | Short-term lease cost | 77,100 | 63,588 | | Variable lease cost | 4,102 | 4,490 | | **Net lease cost** | **180,159**| **161,975**| Weighted-Average Lease Terms and Discount Rates (as of December 25, 2022 vs. December 26, 2021) | Metric | Dec 25, 2022 | Dec 26, 2021 | | :------------------------------------ | :----------- | :----------- | | Weighted-average remaining lease term (years): | | |\ | Operating leases | 5.80 | 6.07 | | Finance leases | 4.52 | 5.32 | | Weighted-average discount rate: | | |\ | Operating leases | 4.00% | 3.92% | | Finance leases | 3.19% | 3.32% | Future Minimum Lease Payments (as of December 25, 2022, in thousands) | Fiscal Year Ending December | Operating Leases ($) | Finance Leases ($) | | :-------------------------- | :------------------- | :----------------- | | 2023 | 90,356 | 1,064 | | 2024 | 67,082 | 908 | | 2025 | 55,911 | 563 | | 2026 | 41,955 | 553 | | 2027 | 29,697 | 526 | | Thereafter | 60,182 | 253 | | **Total future minimum lease payments** | **345,183** | **3,867** | | Less: imputed interest | (35,260) | (243) | | **Present value of lease liabilities** | **309,923** | **3,624** | [5. Derivative Financial Instruments](index=64&type=section&id=5.%20Derivative%20Financial%20Instruments) The company uses derivative financial instruments to mitigate price risk for commodity inputs and foreign currency exchange rates - The company uses **derivative financial instruments** (exchange-traded futures and options) to **mitigate price risk** for anticipated commodity inputs for approximately the next twelve months[344](index=344&type=chunk) - **Foreign currency forward contracts** are purchased to manage translational foreign exchange risk from operations in Mexico, the U.K., France, the Netherlands, and the Republic of Ireland[345](index=345&type=chunk) - An **interest rate swap contract** was used to convert variable interest rates on U.S. long-term debt to a fixed rate, though no such contract was outstanding at year-end 2022[346](index=346&type=chunk) - **Most derivative contracts are undesignated**, with changes in fair value recognized immediately in earnings, while **Cash flow hedges are applied** to certain foreign currency and interest rate derivatives in the U.K. and Europe and U.S. segments, respectively[348](index=348&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk)[352](index=352&type=chunk) Outstanding Derivative Instruments and Cash Collateral (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :-------------------------------------- | :--------------- | :--------------- | | Commodity derivative assets | 17,922 | 17,567 | | Commodity derivative liabilities | (9,042) | (14,119) | | Foreign currency derivative assets | 555 | 518 | | Foreign currency derivative liabilities | (6,170) | (4,958) | | Interest rate swap derivative liabilities | — | (98) | | Sales contract derivative liabilities | (3,705) | (12,691) | | Cash collateral posted with brokers | 33,771 | 22,459 | Gains and Losses of Undesignated Derivative Instruments (2022 vs. 2021 vs. 2020, in thousands) | Type of Contract | 2022 ($) | 2021 ($) | 2020 ($) | Affected Line Item in the Consolidated Statements of Income | | :-------------------------------- | :------- | :------- | :------- | :---------------------------------------------------------- | | Foreign currency derivatives gain (loss) | (35,586) | 12,806 | (6,637) | Foreign currency transaction losses (gains) | | Commodity derivative gain (loss) | 53,899 | 50,404 | 47,554 | Cost of sales | | Sales contract derivative gain (loss) | 8,985 | (12,691) | (209) | Net sales | | **Total** | **27,298** | **50,519** | **40,708** | | [6. Trade Accounts and Other Receivables](index=66&type=section&id=6.%20Trade%20Accounts%20and%20Other%20Receivables) This section details the company's trade accounts, notes, and other receivables, including those from related parties Trade Accounts and Other Receivables (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :-------------------------------------- | :--------------- | :--------------- | | Trade accounts receivable | 984,332 | 947,697 | | Notes receivable | 33,477 | 18,697 | | Other receivables | 88,962 | 56,716 | | Receivables, gross | 1,106,771 | 1,023,110 | | Allowance for credit losses | (9,559) | (9,673) | | **Receivables, net** | **1,097,212** | **1,013,437** | | Accounts receivable from related parties| 2,512 | 1,345 | [7. Inventories](index=67&type=section&id=7.%20Inventories) This section provides a breakdown of the company's inventories, including raw materials, finished products, and operating supplies Inventories (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :------------------------------ | :--------------- | :--------------- | | Raw materials and work-in-process | 1,204,092 | 1,044,739 | | Finished products | 596,375 | 379,705 | | Operating supplies | 95,367 | 76,590 | | Maintenance materials and parts | 94,350 | 74,624 | | **Total inventories** | **1,990,184** | **1,575,658** | [8. Investments in Securities](index=67&type=section&id=8.%20Investments%20in%20Securities) The company's current investments are highly liquid, classified as cash equivalents and available-for-sale securities - The company's current investments are **highly liquid**, with original maturities of three months or less, classified as cash equivalents and available-for-sale securities[362](index=362&type=chunk) Investments in Available-for-Sale Securities (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 Cost ($) | Dec 25, 2022 Fair Value ($) | Dec 26, 2021 Cost ($) | Dec 26, 2021 Fair Value ($) | | :-------------------- | :-------------------- | :-------------------------- | :-------------------- | :-------------------------- | | Fixed income securities | 167,366 | 167,430 | 48,851 | 48,851 | - Gross realized gains from available-for-sale securities totaled **$7.1 million** in 2022 and **$5.4 million** in 2021[362](index=362&type=chunk) [9. Goodwill and Intangible Assets](index=67&type=section&id=9.%20Goodwill%20and%20Intangible%20Assets) This section details goodwill by segment and intangible assets, with no impairment identified as of December 25, 2022 Goodwill by Reportable Segment (as of December 25, 2022 vs. December 26, 2021, in thousands) | Segment | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :-------------- | :--------------- | :--------------- | | U.S. | 41,936 | 41,936 | | U.K. and Europe | 1,058,204 | 1,167,512 | | Mexico | 127,804 | 127,804 | | **Total** | **1,227,944** | **1,337,252** | Intangible Assets (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :---------------------------------- | :--------------- | :--------------- | | Trade names not subject to amortization | 549,024 | 609,713 | | Trade names subject to amortization | 112,057 | 114,268 | | Customer relationships | 427,662 | 455,459 | | Non-compete agreements | — | 320 | | Accumulated amortization | (242,723) | (216,517) | | **Total** | **846,020** | **963,243** | - The company recognized amortization expense related to intangible assets of **$33.7 million** in 2022, **$26.4 million** in 2021, and **$22.7 million** in 2020[366](index=366&type=chunk) - **No quantitative impairment tests were deemed necessary** for goodwill or indefinite-lived intangible assets as of December 25, 2022, based on qualitative assessments[367](index=367&type=chunk) [10. Property, Plant and Equipment](index=69&type=section&id=10.%20Property%2C%20Plant%20and%20Equipment) This section details the company's property, plant, and equipment, including depreciation expense and capital expenditures Property, Plant and Equipment, Net (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :------------------------ | :--------------- | :--------------- | | Land | 263,494 | 260,079 | | Buildings | 2,065,042 | 2,043,034 | | Machinery and equipment | 3,651,464 | 3,594,482 | | Autos and trucks | 77,865 | 76,710 | | Finance lease assets | 5,710 | 5,710 | | Construction-in-progress | 358,819 | 229,837 | | PP&E, gross | 6,422,394 | 6,209,852 | | Accumulated depreciation | (3,481,548) | (3,292,046) | | **PP&E, net** | **2,940,846** | **2,917,806** | - Depreciation expense was **$369.4 million** in 2022, **$354.4 million** in 2021, and **$314.4 million** in 2020[369](index=369&type=chunk) - Capital expenditures totaled **$487.1 million** in 2022, primarily for operational efficiencies and cost reduction[370](index=370&type=chunk) - The company recognized an impairment loss on PP&E of **$3.6 million** in 2022 due to planned restructuring activities[372](index=372&type=chunk) [11. Current Liabilities](index=70&type=section&id=11.%20Current%20Liabilities) This section provides a detailed breakdown of the company's current liabilities, including trade accounts, compensation, and litigation settlements Current Liabilities (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :-------------------------------------- | :--------------- | :--------------- | | Trade accounts | 1,476,552 | 1,273,297 | | Book overdrafts | 93,800 | 77,139 | | Other payables | 17,587 | 27,641 | | **Total accounts payable** | **1,587,939** | **1,378,077** | | Accounts payable to related parties | 12,155 | 22,317 | | Revenue contract liabilities | 34,486 | 22,321 | | Compensation and benefits | 258,098 | 224,368 | | Litigation settlements | 99,230 | 172,440 | | Current maturities of operating lease liabilities | 79,222 | 82,947 | | Insurance and self-insured claims | 72,453 | 64,697 | | Accrued sales rebates | 55,002 | 35,613 | | Taxes | 33,550 | 68,163 | | Interest and debt-related fees | 32,433 | 31,810 | | Derivative liabilities | 18,917 | 31,866 | | Other accrued expenses | 201,994 | 147,981 | | **Total current liabilities (excluding income taxes and current maturities of long-term debt)** | **2,485,479** | **2,282,600** | [12. Income Taxes](index=70&type=section&id=12.%20Income%20Taxes) This section details income before taxes by jurisdiction, income tax expense, and the effective tax rate, which was **27.2%** in 2022 Income (Loss) Before Income Taxes by Jurisdiction (2022 vs. 2021 vs. 2020, in thousands) | Jurisdiction | 2022 ($) | 2021 ($) | 2020 ($) | | :----------- | :-------- | :--------- | :--------- | | U.S. | 928,709 | (141,940) | (27,095) | | Foreign | 96,764 | 234,330 | 188,920 | | **Total** | **1,025,473** | **92,390** | **161,825**| Components of Income Tax Expense (Benefit) (2022 vs. 2021 vs. 2020, in thousands) | Component | 2022 ($) | 2021 ($) | 2020 ($) | | :----------- | :-------- | :-------- | :-------- | | Total current| 257,640 | 147,513 | 29,419 | | Total deferred| 21,295 | (86,391) | 37,336 | | **Total** | **278,935** | **61,122**| **66,755**| - The effective tax rate for 2022 was **27.2%**, compared to **66.2%** in 2021 and **41.2%** in 2020, with the 2022 rate including a **3.8% increase** due to a Mexican tax audit claim[376](index=376&type=chunk)[377](index=377&type=chunk) - As of December 25, 2022, the company had a valuation allowance of **$64.4 million**, primarily for net operating loss carryforwards of certain foreign subsidiaries and U.S. foreign tax credits[379](index=379&type=chunk) - Unrecognized tax benefits totaled **$27.6 million** as of December 25, 2022, with **$0.9 million** that would reduce the effective tax rate if recognized[382](index=382&type=chunk) [13. Debt](index=72&type=section&id=13.%20Debt) This section details long-term debt, including senior notes and credit facilities, and amendments reflecting the company's investment grade status Long-Term Debt and Other Borrowing Arrangements (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Maturity | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :-------------------------------------- | :------- | :--------------- | :--------------- | | Senior notes payable at 3.50% | 2032 | 900,000 | 900,000 | | Senior notes payable, net of discount of 4.25% | 2031 | 991,692 | 990,691 | | Senior notes payable, net of discount at 5.875% | 2027 | 846,582 | 845,866 | | U.S. Credit Facility Term note payable at 5.00% | 2026 | 480,078 | 506,250 | | Finance lease obligations | Various | 3,624 | 4,548 | | **Long-term debt** | | **3,221,976** | **3,247,358** | | Less: Current maturities of long-term debt | | (26,279) | (26,246) | | **Long-term debt, less current maturities, net of capitalized financing costs** | | **3,166,432** | **3,191,161** | - The **4.25% Senior Notes due 2031** are sustainability-linked, with the interest rate increasing to **4.50%** if the company fails to meet its greenhouse gas emissions intensity reduction target of **17.679%** by December 31, 2025[392](index=392&type=chunk)[393](index=393&type=chunk) - In September 2022, **amendments to the Senior Notes** due 2031 and 2032 indentures permanently eliminated certain covenants to reflect PPC's **investment grade status**[394](index=394&type=chunk)[397](index=397&type=chunk) - The U.S. Credit Facility provides an **$800.0 million** revolving credit commitment and a **$700.0 million** term loan commitment, with **$480.1 million** outstanding under the term loan and **$765.0 million** available under the revolving credit as of December 25, 2022[399](index=399&type=chunk)[400](index=400&type=chunk) - The U.K. and Europe Revolver Facility provides a multicurrency revolving loan commitment of up to **£150.0 million** (U.S. dollar-equivalent of **$124.5 million**) maturing on June 24, 2027, with no outstanding borrowings as of December 25, 2022[405](index=405&type=chunk) - The Mexico Credit Facility provides a **$1.5 billion Mexican pesos** (U.S. dollar-equivalent of **$77.5 million**) revolving loan commitment maturing on December 14, 2023, with no outstanding borrowings as of December 25, 2022[407](index=407&type=chunk) [14. Stockholders' Equity](index=76&type=section&id=14.%20Stockholders%27%20Equity) This section details changes in accumulated other comprehensive loss, share repurchase authorization, and dividend restrictions Changes in Accumulated Other Comprehensive Loss (2022 vs. 2021, in thousands) | Item | 2022 ($) | 2021 ($) | | :-------------------------------------- | :--------- | :--------- | | Balance, beginning of year | (47,997) | (20,620) | | Net current year other comprehensive income (loss) | (288,451) | (27,377) | | **Balance, end of year** | **(336,448)**| **(47,997)** | - The company's Board of Directors approved a **$200.0 million** share repurchase authorization on March 8, 2022, under which approximately **7.5 million shares** were repurchased for **$199.6 million** as of September 25, 2022[413](index=413&type=chunk) - **Restrictions on dividends** are imposed by the U.S. Credit Facility and senior note indentures, and the U.K. and Europe Revolver Facility further restricts payments and distributions from U.K. and Republic of Ireland entities to the company[414](index=414&type=chunk) [15. Pension and Other Postretirement Benefits](index=78&type=section&id=15.%20Pension%20and%20Other%20Postretirement%20Benefits) The company sponsors various defined benefit pension and postretirement plans, with total expenses of **$30.9 million** in 2022 - The company sponsors **qualified defined benefit pension plans** and **nonqualified defined benefit plans**, along with a defined benefit postretirement life insurance plan[417](index=417&type=chunk)[418](index=418&type=chunk)[419](index=419&type=chunk) - Total expenses recognized under all retirement plans were **$30.9 million** in 2022, **$19.2 million** in 2021, and **$17.4 million** in 2020[415](index=415&type=chunk) Projected Benefit Obligation (PBO) and Fair Value of Plan Assets (as of December 25, 2022 vs. December 26, 2021, in thousands) | Item | Pension Benefits 2022 ($) | Pension Benefits 2021 ($) | Other Benefits 2022 ($) | Other Benefits 2021 ($) | | :-------------------------------------- | :------------------------ | :------------------------ | :---------------------- | :---------------------- | | Projected benefit obligation, end of year | 236,147 | 373,062 | 1,169 | 1,346 | | Fair value of plan assets, end of year | 210,133 | 326,409 | — | — | | Unfunded benefit obligation, end of year| (26,014) | (46,653) | (1,169) | (1,346) | Net Periodic Benefit Costs (2022 vs. 2021 vs. 2020, in thousands) | Item | Pension Benefits 2022 ($) | Pension Benefits 2021 ($) | Pension Benefits 2020 ($) | Other Benefits 2022 ($) | Other Benefits 2021 ($) | Other Benefits 2020 ($) | | :-------------------------------------- | :------------------------ | :------------------------ | :------------------------ | :---------------------- | :---------------------- | :---------------------- | | Net cost (income) | (212) | 215 | 640 | 23 | 41 | 43 | Weighted Average Assumptions for Benefit Obligation (2022 vs. 2021 vs. 2020) | Metric | Pension Benefits 2022 | Pension Benefits 2021 | Pension Benefits 2020 | Other Benefits 2022 | Other Benefits 2021 | Other Benefits 2020 | | :------------ | :-------------------- | :-------------------- | :-------------------- | :------------------ | :------------------ | :------------------ | | Discount rate | 5.04% | 2.23% | 1.83% | 5.16% | 2.38% | 1.80% | - The company anticipates contributing **$0.8 million** to its pension plans and less than **$0.2 million** to its other postretirement plans during 2023[444](index=444&type=chunk) [16. Incentive Compensation](index=84&type=section&id=16.%20Incentive%20Compensation) The company offers short-term cash/stock-based incentive plans and a long-term equity-based incentive plan (LTIP) for employees - The company sponsors short-term incentive plans with cash or stock-based bonus awards based on performance goals, accruing **$61.8 million** for U.S., **$6.9 million** for U.K. & Europe, and **$3.5 million** for Mexico in 2022[451](index=451&type=chunk) - A performance-based, omnibus **long-term incentive plan (LTIP)** grants equity-based and liability-based awards to officers, employees, directors, and consultants[452](index=452&type=chunk) Stock-Based Compensation Costs and Income Tax Benefit (2022 vs. 2021 vs. 2020, in thousands) | Item | 2022 ($) | 2021 ($) | 2020 ($) | | :-------------------------------------- | :------- | :------- | :------- | | Equity-based awards compensation cost | 6,863 | 10,629 | 2,776 | | Equity-based awards income tax benefit | 1,671 | 2,587 | 676 | | Liability-based awards compensation cost| 1,773 | 7,715 | 1,081 | | Liability-based awards income tax benefit | 432 | 1,878 | 263 | - As of December 25, 2022, total unrecognized compensation cost for nonvested equity-based awards was **$9.5 million** (weighted average period of **2.17 years**) and for nonvested liability-based awards was **$2.5 million** (weighted average period of **1.60 years**)[457](index=457&type=chunk) [17. Fair Value Measurements](index=85&type=section&id=17.%20Fair%20Value%20Measurements) The company measures derivative assets and liabilities at fair value, categorizing them into Level 1 or Level 2 based on observable inputs - The company measures **derivative assets and liabilities at fair value** on a recurring basis, categorizing them into **Level 1 or Level 2** based on quoted prices or observable inputs[459](index=459&type=chunk)[460](index=460&type=chunk)[461](index=461&type=chunk) Fair Value Measurements of Derivative Assets and Liabilities (as of December 25, 2022, in thousands) | Item | Level 1 ($) | Level 2 ($) | Total ($) | | :-------------------------------------- | :---------- | :---------- | :-------- | | **Assets:** | | | | | Commodity derivative assets | 17,922 | — | 17,922 | | Foreign currency derivative assets | 555 | — | 555 | | **Liabilities:** | | | | | Commodity derivative liabilities | (9,042) | — | (9,042) | | Foreign currency derivative liabilities | (6,170) | — | (6,170) | | Interest rate swap derivative liabilities | — | — | — | | Sales contract derivative liabilities | — | (3,705) | (3,705) | - The **fair values of fixed-rate senior notes are based on quoted market prices (Level 2)**, while **variable-rate term notes and secured loans are based on discounted cash flow models (Level 3)**[465](index=465&type=chunk)[467](index=467&type=chunk) [18. Restructuring-Related Activities](index=87&type=section&id=18.%20Restructuring-Related%20Activities) In 2022, the company initiated a U.K. and Europe restructuring, expecting **$58.0 million** in pre-tax charges, largely completed by Q2 2023 - In 2022, the company initiated a **restructuring initiative in the U.K. and Europe segment** to phase out and reduce processing volumes at multiple production facilities[469](index=469&type=chunk) - The initiative is expected to result in total pre-tax charges of approximately **$58.0 million**, with **$53.0 million** estimated as cash outlays, and is expected to be substantially completed by Q2 2023[469](index=469&type=chunk) Estimated Restructuring Costs by Type (in thousands) | Type of Cost | Moy Park ($) | Pilgrim's Pride Ltd. ($) | Pilgrim's Food Masters ($) | Total Estimated Amount Expected to be Incurred ($) | | :---------------------- | :----------- | :----------------------- | :------------------------- | :------------------------------------------------- | | Contract termination | 9,437 | 833 | 2,170 | 12,440 | | Asset impairment | 3,559 | — | — | 3,559 | | Severance | 8,244 | 6,160 | 5,303 | 19,707 | | Employee retention benefits | 1,398 | 276 | — | 1,674 | | Other employee costs | 301 | 181 | 121 | 603 | | Lease termination | 458 | 642 | 1,808 | 2,908 | | Inventory adjustment | 470 | 615 | — | 1,085 | | Other charges | 7,543 | 1,386 | 7,110 | 16,039 | | **Total estimated costs, net**| **31,410** | **10,093** | **16,512** | **58,015** | Restructuring Expenses and Cash Outlays (2022, in thousands) | Initiative | Expenses ($) | Cash Outlays ($) | | :-------------------- | :----------- | :--------------- | | Moy Park | 19,325 | 10,526 | | Pilgrim's Pride Ltd. | 10,140 | 2,590 | | Pilgrim's Food Masters| 1,001 | 341 | | **Total** | **30,466** | **13,457** | [19. Related Party Transactions](index=88&type=section&id=19.%20Related%20Party%20Transactions) This section details sales, purchases, receivables, and payables with related parties, including JBS USA Food Company Sales to Related Parties (2022 vs. 2021 vs. 2020, in thousands) | Related Party | 2022 ($) | 2021 ($) | 2020 ($) | | :---------------------- | :------- | :------- | :------- | | JBS USA Food Company | 24,224 | 17,296 | 14,228 | | JBS Australia Pty. Ltd. | 2,855 | 2,439 | 2,540 | | Other related parties | 2,868 | 1,721 | 1,112 | | **Total sales** | **29,947** | **21,456** | **17,880** | Cost of Goods Purchased from Related Parties (2022 vs. 2021 vs. 2020, in thousands) | Related Party | 2022 ($) | 2021 ($) | 2020 ($) | | :---------------------------- | :------- | :------- | :------- | | JBS USA Food Company | 156,452 | 210,657 | 142,615 | | Seara Meats B.V. | 44,364 | 4,722 | 8,138 | | Penasul UK LTD | 13,516 | 6,697 | — | | JBS Asia CO Limited | 7,762 | 5 | — | | Other related parties | 1,476 | 1,054 | 829 | | **Total cost of goods purchased** | **223,570**| **223,135**| **151,582**| Accounts Receivable from Related Parties (as of December 25, 2022 vs. December 26, 2021, in thousands) | Related Party | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :------------------------------ | :--------------- | :--------------- | | JBS USA Food Company | 2,062 | 1,059 | | Seara Meats B.V. | 61 | — | | Other related parties | 389 | 286 | | **Total accounts receivable** | **2,512** | **1,345** | Accounts Payable to Related Parties (as of December 25, 2022 vs. December 26, 2021, in thousands) | Related Party | Dec 25, 2022 ($) | Dec 26, 2021 ($) | | :------------------------------ | :--------------- | :--------------- | | JBS USA Food Company | 7,434 | 21,628 | | JBS Asia Co Limited | 2,099 | — | | Seara Meats B.V. | 1,565 | 534 | | Penasul UK LTD | 940 | 147 | | Other related parties | 117 | 8 | | **Total accounts payable** | **12,155** | **22,317** | - The company has **agreements with JBS USA** to allocate costs for SAP licenses and maintenance services, and for supporting business operations by a consolidated corporate team[479](index=479&type=chunk) - A tax sharing agreement with JBS USA Holdings resulted in a **$1.6 million** net tax payable for 2022, accrued as a capital distribution and related party account payable[386](index=386&type=chunk)[480](index=480&type=chunk) [20. Reportable Segments](index=89&type=section&id=20.%20Reportable%20Segments) The company operates in three reportable segments: U.S., U.K. and Europe, and Mexico, with segment profit measured as operating income - The company operates in **three reportable segments**: U.S., U.K. and Europe, and Mexico, with segment profit measured as operating income and corporate expenses allocated based on specific expenditures[481](index=481&type=chunk) Net Sales by Reportable Segment (2022 vs. 2021 vs. 2020, in thousands) | Segment | 2022 ($) | 2021 ($) | 2020 ($) | | :-------------- | :----------- | :----------- | :----------- | | U.S. | 10,748,350 | 9,113,879 | 7,496,017 | | U.K. and Europe | 4,874,738 | 3,934,062 | 3,274,292 | | Mexico | 1,845,289 | 1,729,517 | 1,321,592 | | **Total** | **17,468,377** | **14,777,458** | **12,091,901** | Operating Income by Reportable Segment (2022 vs. 2021 vs. 2020, in thousands) | Segment | 2022 ($) | 2021 ($) | 2020 ($) | | :-------------- | :---------- | :--------- | :--------- | | U.S. | 1,094,025 | (17,036) | 69,377 | | U.K. and Europe | (934) | (627) | 102,734 | | Mexico | 83,450 | 228,773 | 72,879 | | Eliminat

Financial Data and Key Metrics Changes - For Q4 2022, the company reported net revenues of $4.13 billion, an increase from $4.04 billion in the previous year, with adjusted EBITDA of $63 million and an adjusted EBITDA margin of 1.5%, down from $317 million and 7.8% in Q4 2021 [3][37] - For the fiscal year, net revenues were $17.5 billion, an 18.2% increase over the previous year, with adjusted EBITDA of $1.65 billion and a margin of 9.4%, compared to $1.29 billion and 8.7% in 2021 [24][66] Business Line Data and Key Metrics Changes - In the U.S., adjusted EBITDA for Q4 was $15.8 million, slightly above breakeven, while for the full year, adjusted EBITDA was $1.37 billion with a margin of 12.7%, up from $896 million and 9.8% in 2021 [38][67] - The European business saw adjusted EBITDA of $62.9 million in Q4, up from $24.7 million in 2021, and for the full year, adjusted EBITDA was $168.7 million compared to $137.8 million in 2021 [39] - Mexico reported a loss of $15.8 million in adjusted EBITDA for Q4, down from a profit of $27 million last year, but achieved $113 million in adjusted EBITDA for the full year [40] Market Data and Key Metrics Changes - The U.S. chicken supply for Q4 increased by 6% year-over-year, driven by headcount and higher average live weights, while total protein availability was much higher than anticipated [26][27] - The retail channel for chicken experienced stable volumes in Q4, with dollar sales growing at a double-digit rate, while volume sales remained relatively flat [10] - The foodservice channel grew in volume and dollar sales, with non-commercial segments posting significant year-over-year gains [11] Company Strategy and Development Direction - The company emphasized portfolio diversification, key customer focus, and operational excellence to mitigate market volatility [22] - Investments in operational excellence and automation are ongoing, with a focus on enhancing margins and scaling profitable growth [23][34] - The company is committed to capital spending plans that prioritize safety, optimize product mix, and strengthen partnerships with key customers [41] Management's Comments on Operating Environment and Future Outlook - Management noted that inflationary headwinds and market volatility were significant challenges throughout the year, but the team effectively engaged with key customers to mitigate costs [24] - The outlook for 2023 includes expectations for improved market conditions, particularly in the big bird segment, as supply-demand dynamics are anticipated to stabilize [87] - The company remains confident in the long-term prospects for both its Prepared Foods and Fresh branded business, particularly in Mexico [64] Other Important Information - The company recorded a GAAP net loss of $155 million in Q4, influenced by a discrete income tax charge related to a Mexican tax matter [66] - The company has a strong balance sheet with approximately $1.4 billion in total cash and available credit, and no immediate cash requirements [42] Q&A Session Summary Question: Supply and demand in the U.S. market - Management indicated that USDA estimates suggest a significant reduction in chicken production for the second half of the year, with expectations of demand shifting from beef to chicken due to its affordability [47][50] Question: Profitability in the non-commodity parts of the U.S. chicken segment - Management highlighted that despite challenges in the big bird market, the small bird segment continues to see stable margins due to strong partnerships with key customers [86] Question: Challenges in the Mexican market - Management acknowledged the volatility in the Mexican market but noted improvements in financial results as the market has moved towards balance [40][88] Question: Cold storage levels and inventory management - Management discussed the high levels of breast meat in cold storage and indicated that it typically takes several months to work through such inventory levels [117]

Net sales $ 4,127,365 $ 4,038,769 $17,468,377 $14,777,458 $4,127,365 $4,038,769 $17,468,377 $14,777,458 Appendix: Reconciliation of EBITDA Margin EBITDA margins have been calculated by taking the relevant unaudited EBITDA figures, then dividing by net sales for the applicable period. EBITDA margins are presented because they are used by management and we believe they are frequently used by securities analysts, investors and other interested parties, as a supplement to our results prepared in accordance with ...

Pilgrim's Pride Corporation (NASDAQ:PPC) Q3 2022 Earnings Conference Call October 27, 2022 9:00 AM ET Company Participants Andy Rojeski - Head-Strategy, IR and Net Zero Programs Fabio Sandri - President and CEO Matt Galvanoni - CFO Conference Call Participants Ben Theurer - Barclays Ben Bienvenu - Stephens Ken Zaslow - Bank of Montreal Peter Galbo - Bank of America Adam Samuelson - Goldman Sachs Operator Good morning, and welcome to the Third Quarter 2022 Pilgrim's Pride Earnings Conference Call and Webcast ...